London Briefing:Is now the time to start buying shares? The panic that gripped global stock markets last week wiped out all the gains made by London's FTSE 100 index this year and the mood among traders remains extremely fragile.

What earlier this year had seemed to many to be a US- specific problem - the crisis in the housing market - has now spread throughout the global financial system.

The mortgages on which hard-pressed American consumers with poor credit records are now defaulting in their millions - the so-called subprime loans - have been packaged up in a variety of ingenious financial instruments and sold on to institutions around the world.

Where the worst of the losses will eventually emerge is impossible to say at this stage, but the impact on credit and equity markets has been dramatic.

At the moment, stock markets are in the grip of a correction rather than a full-blown crash, although it might take only one or two more subprime shocks to tip equities over.

But, as history shows, market turmoil throws up money- making opportunities for those who can hold their nerve.

Investment bank Morgan Stanley put its head above the parapet on Monday with a strong buy note to clients. This is still a bull market, insisted its European equity strategist, Teun Draaisma, who said the investment bank was now going overweight on equities.

Fundamentals are solid, with no recession in sight, and central banks globally are clearly stepping up to the plate.

He told clients: "Sure, there are risks and we may be too early. Markets hate uncertainty and there is a lot of it around currently.

"The financial risks won't go away overnight. Credit markets are still in trouble. We do not know who owns what financial instrument and who sits on how big of a loss. Spillover to economic growth will be the theme for the next few quarters.

"But one has to buy at the moment of maximum uncertainty, and in our judgment now is close to such a moment."

For investors brave enough to take his advice, Morgan Stanley's preferred sectors are healthcare, financials, technology and telecoms. It is moving underweight in the industrials and consumer sectors.

It prefers larger companies over small and mid-cap firms, and believes that, with one-third of companies having net cash on their balance sheets, the market will continue to see strategic merger and acquisition activity.

Bank of England stays on sidelines

Led by the European Central Bank (ECB), central banks moved decisively last week to restore calm to world markets, pumping a total of $323 billion (€238 billion) of liquidity into the banking system.

They continued this week, although, as the ECB reported a "normalising" of market conditions on Monday, on a far smaller scale. While initially the ECB's move appeared to alarm traders even further, as it served to highlight the seriousness of the market meltdown, it seems to have done the trick for the time being at least.

A number of commentators were, however, critical of the European bank for appearing to be panicked into its biggest intervention in the market yet, and its first such cash injection since the dark days following September 11th, 2001.

One bank was notable by its absence last week: the Bank of England (BoE). As others waded in, including the US Federal Reserve, the Bank of Japan, and the Swiss and the Canadian central banks, the Old Lady of Threadneedle Street stayed resolutely on the sidelines.

Behind its apparent lack of activity is the permanent and unlimited facility put in place by the BoE last year for banks to draw on as and when they need to. The rate charged by the BoE for such funds is 6.75 per cent - a full point above current base rate - which has the effect of discouraging any but the most troubled to take up the facility.

That contrasts markedly with the other central banks' injection of cheap funds into the global banking system.

The advantage of the BoE's approach is that it gives the authorities early warning of where the real problems may lie, as any bank which decides to take up money at such rates must indeed be struggling.

There are signs that the BoE intends to take a firm line on the market turmoil. While it is obviously monitoring events closely, governor Mervyn King made it clear last week that he did not see it as the duty of central banks to protect financial institutions from the consequences of irresponsible lending.

Fiona Walsh writes for the Guardian newspaper in London