JEAN-CLAUDE Trichet, president of the European Central Bank, has added to uncertainty about eurozone monetary policy, saying he would not commit to any interest rate moves before an upcoming policy meeting.
Wary European financial markets also absorbed news that the government of the eastern German state of Saxony opted on Sunday to sell its stricken lender SachsenLB to Stuttgart-based LBBW.
Answering questions after a speech in Budapest, Trichet sa
id his 2 August policy stance, in which he called for "strong vigilance" to stem inflation, was articulated prior to recent market volatility.
He said the bank would wait until its next policy meeting on 6 September before deciding what to do next.
"We will then have to assess all of the elements of the economy," he said. "We will assess the risks and will take the appropriate steps at that moment."
European markets rose for a seventh day in a row in their best run in almost nine months.
But US stocks fell as data there showed inventories of unsold single-family homes rose to the highest level in more than 15 years last month fuelling continued concern about the economy.
Trichet's remarks added to market expectations that central banks may now move to inject more liquidity into financial markets to fend off the credit squeeze that has sent markets into a tailspin in recent weeks.
Last week, national central bank officials in Europe said the market turmoil had made a previously expected quarter-point eurozone rate rise to a six-year high of 4.25 per cent far from certain.
Earlier this month, both the ECB and Federal Reserve injected emergency funds into the economy to prevent credit markets from seizing up. Markets are expecting the Fed to cut the Fed funds interbank overnight rate from the current 5.25 per cent at its 18 September meeting to ease the crisis stemming from defaults on mortgages given to people with weak credit histories.
The housing figures from the US National Association of Realtors (NAR) sparked further concern that house prices there could fall sharply after they showed sales fell to a near five-year low in the year to July.
They came as the world's largest DIY chain, Home Depot, said it was being forced to drop the sale price of its commercial supply business by nearly $2 billion, or 18 per cent, one of the first big buyouts to be renegotiated as a result of the tightening of credit and problems in the US housing market. Sales of existing homes fell 0.2 per cent to 5.75 million units in the year, the lowest since November 2002, said NAR. It marks the first time that the US's main estate agent body had reported a decline in 12 consecutive months.
Last week a separate study said sales of new homes rose in July. That surprise finding gave Wall Street a major boost on Friday, but the latest NAR data caused key US shares to fall in early trading on Monday. NAR added that the supply of unsold single-family homes has now hit its highest level in 16 years.
• Singapore's DBS Group Holdings, state-controlled Bank of China and its Hong Kong subsidiary, BOC Hong Kong, revealed a combined exposure to the US subprime mortgage market of almost $13 billion.
