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Scant financial solvency

17 January 2008

MADRID – The stock market of late is not a place for the faint-hearted, although in the latest session there were a number of swings in share prices in the Spanish bourse, which could indicate the downturn may be touching bottom.

The Spanish blue-chip Ibex 35 lost 0.92 percent yesterday, a reasonable outcome, given that at one point it was down by as much as 1.85 percent and at another was up 0.87 percent. Such volatility is the logical outcome of a chain of drops and rebounds totally beyond the control of investors.

Far from exuding calm, the international situation remains marked by uncertainty, with the solvency of the financial system of the world’s largest economy under question. This is almost tantamount to saying the fate of the international financial system will be in play over the coming months. The sharp falls in stock markets globally are a basic response to this underlying question, to which so far no one seems to have the answer.

How liquid a stock is constitutes an essential consideration in times of crisis. This is reflected in the fact that the performance of the Ibex 35 stocks has been less negative, although even within the blue-chip index there are significant differences on this score. The Ibex Medium Cap lost 1.21 percent and the Ibex Small Cap 2.92 percent. As a result, they have accumulated losses for the year to date of 13.73 and 15.34 percent respectively, compared with a fall of 8.99 percent for the Ibex 35. Turnover in the continuous market amounted to EUR 10.939 billion.

News that the consumer price index in the United States last year was up 4.1 percent presents an added problem for the Federal Reserve when it comes to cutting interest rates as a means of helping to resolve part of the problem.

[Copyright EL PAÍS / RAFAEL VIDAL 2008]

Subject: Spanish news