The New Nation - Internet Edition

AFP, New York

Wobbles returned to global stock markets on Friday as fears of a credit squeeze resurfaced following the US Federal Reserve's move to increase its liquidity injection to markets.

The Dow Jones Industrial Average gave back early gains and finished essentially flat, with a loss of a fractional 0.25 point at 13,235.88. The Nasdaq composite dropped 11.10 points (0.43 percent) to 2,541.70 and the Standard & Poor's 500 broad-market index shed 1.57 points (0.11 percent) to close at 1,462.50.

A day after hefty gains in most global markets, US stocks opened strong on news that Bank of America had agreed to invest two billion dollars in troubled US mortgage giant Countrywide Financial Corporation.

"The news prompted one analyst to upgrade Countrywide shares," said Dendra Lambert at Hilliard Lyons. "Still, fears that a downturn in housing and credit markets could lead to a recession remained."

Markets began to waver after news that the Federal Reserve had injected 17.25 billion dollars into the financial system in three actions Thursday, the latest in a series of moves designed to ease a credit squeeze in global markets.

The moves left market participants "struggling to grasp the extensiveness of the credit turmoil and again wondering if borrowers are in fact geting the credit they need," said analysts at Briefing.com.

The European Central Bank meanwhile added 40 billion euros (54 billion dollars) in three-month funds to the money market to cut borrowing costs in one of the areas hardest hit by the US subprime crisis.

"One of the key questions now is whether the market has shaken off the credit worries and other negatives sufficiently to continue a relatively uninterrupted move higher," said Gregory Drahuschak at Janney Montgomery Scot

"Although it is possible that the market can keep moving straight up short-term, if it does it will be an anomaly relative to historic precedent"

Some analysts said the market has not yet fully discounted the impact of the liquidity squeeze.

"We think the markets are being too complacent about economic prospects," said Patrick Fearon at AG Edwards.

"As of this moment, we still think that the deterioration in the world's financial markets will weigh on economic growth and that this will become evident in data that will start coming out in September."

In London the FTSE 100 index closed up a mere 0.01 percent at 6,196.90, while in Frankfurt the DAX 30 gained 0.15 percent to 7,511.96 and the Paris CAC 40 rose 0.09 percent to 5,523.33.

The Euro Stoxx 50 index of leading eurozone shares gained 0.16 percent to 4,233.35.

In other markets, Brazil's Bovespa gained 0.2 percent and Mexico's Bolsa advanced 0.65 percent

In Canada, the S&P/TSX Composite fell 0.9 percent

Earlier in Asia a positive lead from China galvanized buying interest after Shanghai shares smashed through the 5,000-point level for the first time.

Tokyo's main shares index soared by 2.61 percent to end at 16,316.32 points, regaining the key 16,000 points level as the Bank of Japan held interest rates at 0.50 percent

Elsewhere, Hong Kong ended 2.77 percent higher, Seoul gained 2.3 percent, Sydney rose 2.6 percent and Wellington added 1.38 percent