The loss of confidence among global financial markets has deepened and spread, according to the latest quarterly survey from the Bank for International Settlements (BIS).

In a downbeat report released today, the BIS, the central bankers' central bank, says perceived risks from the problems in corporate America have affected insurers and banks and "threatened to constrain financial intermediation, possibly adding to the difficulties of non-financial firms in raising money".

The BIS, which has consistently warned about the dangers of asset bubbles, also says the falls in global stocks could lead to drops in house prices, and it warns that the US remains vulnerable to a drop-off in consumer spending.

The bank's survey says that the bout of equity price weakness which started in July showed "that to a greater extent than before, share prices indicated a loss of confidence in the financial sector".

European insurers' share prices fell below the levels they dropped to in the wake of September 11 last, while confidence in large US banks fell after Citigroup and JP Morgan Chase were dragged into the investigations of the Enron collapse.

Asset prices showed a markedly higher risk of doing business even with the large US money-centre banks, it says. - (Financial Times Service)