North American stock markets fought their way back from steep early losses Friday as central banks continued to pump billions into the financial system to soothe jittery markets.

The Dow Jones Industrial Average ended a volatile day with a dip of just 31 points to 13,239.

Floor traders signal the trend in the market Friday at the Philippine Stock Exchange. Philippine shares plunged, with jittery investors cashing in gains in the wake of Wall Street's slump and the subsequent slide in regional markets.
(Pat Roque/Associated Press)

The Dow had dropped more than 200 points in the first hour of the trading day and had shed 387 points in frantic trading on Thursday.

The Toronto Stock Exchange composite index closed Friday at 13,465, down a modest 12 points. At one point early Friday morning, the main TSX index had dropped more than 250 points before clawing its way back.

The index had fallen 280 points on Thursday as it got caught up in the worldwide worry over the U.S. subprime debt market. 

Asian stocks fell overnight, continuing the market turmoil Thursday in North America and Europe.

Investors were wondering if worsening lending conditions would lead to a global slowdown in growth and corporate profits.

Some economists said the fears are being overblown.

"We believe the risk of the credit turbulence spreading into the overall economy is limited," said BMO Capital Markets chief economist Sherry Cooper.

But many observers say wild swings will be a hallmark of stock markets in the weeks and months to come. 

"Until this is cleared up, it's going to be very volatile times," said Barclays analyst Henk Potts in London.

The Bank of Japan joined its U.S., Canadian, European and Australian counterparts in providing additional credit transfusions and that eventually seemed to stem the tide of selling on equity markets — at least for now.

The Bank of Japan said it injected one trillion yen ($8.39 billion US) into money markets to curb rises in a key overnight interest rate, following similar moves elsewhere.

On Friday, the European Cental Bank provided another transfusion valued at more than $80 billion US. "This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market," it said.

On Thursday, the European Central Bank provided more than $130 billion US to money markets, the bank's biggest infusion ever, and the U.S. Federal Reserve also added a larger-than-normal $24 billion US in temporary reserves to the U.S. banking system.

Words of assurance

The U.S. central bank moved Friday to add another $38 billion US in temporary reserves — and offered words of assurance, too.

"The Federal Reserve is providing liquidity to facilitate the orderly functioning of financial markets," it said in a brief statement.

"The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target rate of 5.25 per cent.

"In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets. As always, the discount window is available as a source of funding."

Data from the Bank of Canada showed it intervened Friday with an injection of $1.685 billion by the early afternoon, following a liquidity boost of $1.64 billion on Thursday.  

For all of the volatility in North American markets in the last few days, it's worth noting that the Dow, the Nasdaq composite index, and the S&P 500 index all managed to end the week ahead of where they ended last week.

The S&P/TSX composite index lost about 100 points week-over-week — less than one per cent. 

 

With files from the Associated Press