PARIS: In Europe, August is a cherished vacation month on the financial calendar, leading to erratic trading and volatile markets.

So when markets entered an exceptionally rocky period following the collapse of two Bear Stearns funds with exposure to bad U.S. mortgage loans, many investors and bankers just stepped back to monitor the markets and wait until September, when the extent of companies exposure to the crisis was clearer.

But now that the summer vacations are over, the only thing that seems certain is that insecurity over where possible credit losses may lie persists.

“We are at an inflection point,” said Puneet Sharma, a credit analyst at Barclays Capital in London. “Confidence among short-term investors needs to be restored first and they are waiting to hear what the central banks say, what earnings the big brokerages report and how the Fed reacts. There is no doubt that downside market risks prevail.”

Investors are waiting for the big Wall Street firms like Morgan Stanley and Goldman Sachs to start reporting earnings in two weeks to see how big the damage really is.

European banks, including UniCredit, have published statements saying their exposure to subprime loans is negligible. But mistrust persists among investors because some analysts and rating agencies have said it is impossible to estimate losses as a result of the U.S. subprime lending crisis.

Loans to U.S. customers with poor credit histories have started to appear in the form of complex debt structures on banks balance sheets or in funds managed by them and hedge funds from Europe to Australia. This has prompted writedowns, bailouts and fund closings.

Spooked by more possible fallout from the subprime crisis, some investors have started to unwind their investments, trying to retrieve their money while they still can, and that has led to a slump in stock prices. Few investors were courageous enough to buy even though some analysts pointed to bargains, with some investors likening such an act to attempting to catch a falling knife.

Insecurity about market valuations has exacerbated the downward trend, in which the Dow Jones Industrial Average has fallen 2.4 percent since June 15, when reports emerged that Bear Stearns would liquidate holdings from one of its hedge funds after making unprofitable bets on subprime mortgage bonds.

On Wednesday, most markets across Asia, Europe and the United States fell.

The method of splicing up risky debt, like subprime loans, and repackaging it into less-risky but highly complex debt investment vehicles, like collateralized debt obligations, makes it almost impossible to determine the exposure of companies to the recent market turmoil, analysts say.

“We are not in a trend-following pattern at the moment, and even although companies are updating the market and banks feel there is a necessity to be open it is very difficult to evaluate anything,” said Derek Chambers, a banking analyst at Standard Poors Equity Research in London.

For the big Wall Street firms, some analysts say the pain will be felt most in fixed-income divisions and at those banks with a heavy exposure to mortgages. The exceptionally successful trading month of July may ease the damage on the quarterly figures.

But analysts at Lehman Brothers Holdings wrote in a report Wednesday that European investment banks would take a “material hit” to earnings from losses incurred by activities related to U.S. subprime loans. They said that disclosure by those banks about their subprime-related assets, including collateralized debt obligations, “ranges from the bad to the nonexistent.”

Some executives at European banks tried to calm investors before the reporting period by saying that there were signs the credit markets were coming back. Josef Ackermann, Deutsche Banks chief executive, acknowledged Tuesday that Deutsche Banks investment banking business had been hit by the recent turmoil in credit markets, but he said that liquidity was returning and that he was satisfied with the banks overall performance.

The increasing caution has meant that investors have shied away from anything remotely related to securities backed by assets like mortgages, nearly shutting down the market for leveraged lending, which relies heavily on credit markets.

Such leveraged lending is employed heavily by private equity firms to finance takeover deals. But without any buyers for such debt products, they are having difficulty raising cash for future takeovers. That is bound to hurt investment banks like Goldman Sachs and Credit Suisse that have relied heavily on lucrative contracts to advise on and help finance private equity buyouts.

Wendel, the Paris-listed investment company, said recently that given the current market conditions it would not do any buyouts for the next six months, according to Bloomberg News.

SГO PAULO: Talk about an untapped market.

Brazils newfound economic stability and changes in lending laws are for the first time making it possible for the countrys working poor to buy their own homes.

And using money that has been pouring in from foreigners who sense a lucrative investment - $4.8 billion since September 2005 - the countrys construction and real estate companies are building as fast as they can.

“There is a stronger demand for houses. There is a housing deficit, and now there are people with money to buy them,” said Joгo Crestana, the vice president of urban development at Secovi, a leading confederation of constructors and developers in Sгo Paulo State, Brazils most populous. “Companies can see there is a market.”

Although changes are sweeping through the industry, the biggest are coming in the market for houses and apartments intended for Brazilians earning up to five times the 380 reais, or $198, monthly minimum wage, like Glauco Rodrigues and Alexandra Soldi.

Until recently, the young couple, who plan to get married Sept. 8, would have had little choice but to rent or live with one of their parents until they saved for their own place. Now, they are set to move into their own home early next year, a new, tiny, two-bedroom apartment they are buying in the gritty north side of Sгo Paulo.

For years, Brazils poor had little access to credit. And even if they could get credit, they could not hope to meet interest rates that were frequently among the highest in the world.

That, combined with unemployment and underemployment, low pay and the instability brought on by regular economic crises, led to the explosion of favelas, the shantytowns scattered in and around Brazils urban centers.

But since Luiz Inбcio Lula da Silva became president in 2003, interest rates have tumbled to 12 percent from 25 percent and appear set to continue falling. Inflation was 3.1 percent last year and is well under control.

And both the minimum wage and workers salaries are rising at rates exceeding the cost of living, according to government figures, meaning workers have more disposable income.

Buying a small home is finally a real possibility for many Brazilians.

“Credit is so readily available,” said Luiz Galfaro, co-president of Galfaro Empreendimentos Imobilбrios, his familys construction company, which is building the apartment that Rodrigues and Soldi are buying. “Buying a house is getting to be like buying a car.”

Brazils construction firms are using the huge new investment by foreigners to help meet the growing demand.

The countrys biggest mortgage financier, the government-run Caixa Econфmica Federal, estimates that Brazil needs 7.9 million new homes. Ninety-two percent of those homes are needed by people who are classified as lower-middle income.

Companies that once devoted their entire business to building chic residential properties for the cosmopolitan wealthy in Sгo Paulo and Rio de Janiero are reassessing their portfolios and starting to construct smaller and cheaper homes in state capitals and the provinces.

Rodobens, a provincial firm specializing in the lower-middle-income bracket, has plans to build 10,000 homes a year over the next four years, a fifteenfold rise on its previous annual total. Cyrela, a major Brazilian developer that raised 1.2 billion reais in a September 2005 initial public offering of stock and a second sale 10 months later, added lower-income properties last year to its portfolio of middle, high-income and luxury homes.

And Gafisa, Brazils second-biggest developer, created two new companies last year specifically aimed at building homes for the less well off.

“We are redirecting our efforts to that lower-middle-income sector,” said Wilson Amaral de Oliveira, Gafisas chief executive.

“All the big companies are moving in that direction because it is going to bring us more business. And its not a bubble, its sustainable. Just look at the demographics.”

The demographics show that the number of people ages 25 to 50 - a strong indicator of future demand - will grow over the next 20 years, meaning more and more people will reach the age when they want their own home.

Mortgages are still rare in Brazil, with bank loans for house purchases representing just a tiny fraction of the countrys gross domestic product. Those few who did qualify for mortgages customarily got loans over a maximum of 15 years at interest rates well into double figures. Homebuyers needed to put down around 35 percent of the propertys value.

Now, though, banks and other lenders are lending up to 80 percent of the propertys value, allowing borrowers up to 30 years to pay them back and offering fixed interest rates for the first time.

U.S. stock indexes were trading lower on Wednesday, as investors reacted to a weaker-than-expected private-sector employment report that may bode poorly for the payrolls data due out on Friday, and a weaker pending home sales report.

Once again, financial stocks led the way to the downside, but retailers were also weak. The Dow Jones industrial average dropped 146.81 points, or 1.09%, to 13,302.05 on Wednesday. The broader S&P 500 was down 15.85 points, or 1.06%, to 1,473.57. The tech-heavy Nasdaq composite index fell 16.37 points, or 0.62%, to 2,613.87.

The ADP National Employment Report showed an increase of only 38,000 in August, significantly below the 65,000 gain that had been expected and the smallest increase in four years. The private sector added 48,000 jobs in July.

An independent report from Challenger, Gray & Christmas Inc., an employment consulting firm, said that announced layoffs soared 85% to 79,459 in August from 42,897 in July. The job cuts in August were the highest since February, when they totaled 84,014.

Pending home sales fell 12.2% in July from June and were down 16.1% from a year ago. The July numbers were the lowest since September 2001. The biggest drop — 20.8% — was seen in the western U.S., where jumbo loans, whose rates have become especially costly since the credit crunch, are prevalent.

The latest data adds to weaker-than-expected August manufacturing numbers and construction spending data, boosting market confidence that the Federal Reserve will ease interest rates at its Sept. 18 policy meeting. But analysts are debating whether a cut in the Fed funds rate will end up freeing up liquidity and easing the tightening in credit markets.

Adding firepower to that debate are new worries over an uptrend in the London interbank offered rate, or Libor, a key benchmark for giant floating-rate bank loans taken out by global corporations. The fact that Libor is now markedly above the Fed funds rate and moving in the opposite direction of other short-term interest rates, likely indicates problems in the money markets that may not be alleviated by Fed rate cuts.

Oil prices have remained firm as traders await the OPEC meeting next week, which is expected to leave production quotas unchanged. The potential for another inventory drawdown, when the Energy Information Administrations weekly numbers come out on Thursday, is also helping to keep prices strong, even as concerns about slowing global growth persist, according to Action Economics. September West Texas Intermediate crude oil futures rose 13 cents to $75.21 per barrel.

Among stocks in the news on Wednesday, Costco Wholesale Corp. («www.businessweek.com») fell 5.1% after posting a 2% increase in stores open at least one year in August, much lower than estimates, and a 6% rise in total sales. Costco’s report spurred selling across the retail sector.

The latest casualty of the subprime real estate meltdown: The planned merger between mortgage insurers MGIC Investment Corp. («www.businessweek.com») and Radian Group Inc. («www.businessweek.com»), which the two companies terminated Wednesday. The companies say that current market conditions have made the combination more challenging. An unprecedented number of margin calls in the first half of this year caused liquidity to dry up at C-Bass LLC, a joint venture in which each company owns a 46% stake. At the end of July, Standard & Poor’s predicted the C-Bass impairment and the risky nature of Radian’s portfolio were likely to derail the merger. MGIC was up 2.1% Wednesday, while Radian shares dropped 10.6%.

Shares of Applix Inc. («www.businessweek.com») jumped 22.1% on news that the company has agreed to be acquired by Cognos for $17.87 per share, or about $339 million, subject to regulatory approvals.

MasTec Inc. («www.businessweek.com») shares fell 13.4% after it projected $265 million in revenue and 18 to 20 cents a share in earnings from continuing operations in the third quarter. The specialty contractor also revised its 2007 profit forecast to 78 to 82 cents a share, citing higher recruiting activity and training and modified compensation policies.

Tyson Foods («www.businessweek.com») was down 11% after it cut its fiscal 2007 earnings outlook to 72 to 80 cents a share, citing higher-than-expected live cattle costs, a decline in beef revenues and higher live hog prices.

L.B. Foster Co. («www.businessweek.com») shares were up 11% on news that Canadian Pacific Railway has reached an agreement to buy the Dakota Minnesota and Eastern Railroad (DM&E), in which Foster holds a minority equity interest, for $1.48 billion. The acquisition will result in a total payment of about $277.3 million to Foster.

World markets were trading mostly lower on Wednesday, with European equity markets falling on concern over banks’ earnings due to the U.S. subprime mortgage crisis. In London, the FTSE 100 index fell 1.66% to 6,270.70. Germany’s DAX index dropped 1.73% to 7,588.03. In Paris, the CAC 40 index plunged 2.14% to 5,551.55.

In Japan, the Nikkei index fell 1.60% to 16,158.45. In Hong Kong, the Hang Seng index rose 0.77% to 24,069.17. The Shanghai composite index was up 0.31% to 5,310.72.

Treasury Markets

Treasuries soared in response to tepid jobs and weaker home sales data, as well as to heightened risk-aversion after a foiled terrorist attack in Germany, S&P MarketScope said. The 10-year note jumped 19/32 to 102-06/32 for a yield of 4.47%, and the 30-year note vaulted 29/32 to 103-16/32 for a yield of 4.78%.