Concerns about the impact of the credit market turmoil on the Wall Street banks mounted yesterday as Standard & Poor's said there was an increased chance of it cutting its credit rating on Bear Stearns.

The cost of insuring against default on the debt of all the Wall Street banks rose sharply, with Bear Stearns trading at a level higher than the average for junk bonds.

The Wall Street banks are exposed both to the problems in the US subprime mortgage market and to investors' reluctance to buy debt in leveraged buyouts.

This could leave the banks holding billions of dollars in loans they have committed to private equity funds.

The banks' success in offloading, at a discount, $8 billion (€5.8 billion) of loans for Chrysler's financing arm this week encouraged some observers to believe the market was stabilising.

However, it emerged yesterday that banks had for the moment given up trying to sell about $2 billion of debt to fund the buyout of Alliance Boots, the pharmacy chain.

S&P said Bear had a relatively high reliance on the mortgage and leveraged finance sectors and its "profitability would be especially affected if there were an extended downturn in these markets".

Bear shares were down 7 per cent in early New York trading for a fall of almost a quarter in a month.

But they recovered strongly after Bear put out a statement saying the credit market problems were "not likely to have a disproportionate impact" on thecompany.

Jimmy Cayne, chief executive, said the company's trading in June and July had been "solidly profitable" and that its balance sheet was "strong and liquid".

S&P said it was concerned about the impact on Bear's reputation of the collapse of two mortgage securities hedge funds it managed. It also pointed to the threat of litigation.

But Bear said these were "isolated incidences and are by no means an indication of broader issues at Bear Stearns".

Credit ratings are particularly important for broker dealers like Bear Stearns, which are heavily dependent on the capital markets to fund their balance sheets. The threat of downgrades is likely to increase speculation that Mr Cayne might consider selling the company, whose shares were down 2.4 per cent at midday.

The signs of stress in the US mortgage market continued yesterday with shares in Countrywide Financial, the largest US mortgage lender, down about 5 per cent at noon in New York after it put out a statement denying it faced liquidity problems.

American Home Mortgage, whose banks have cut off funding, said it planned to shut most of its operations with the loss of 7,000 jobs.