Alan Greenspan, once the world's top central banker, said current credit turmoil reminded him of 1987 and 1998 market crises while policymakers in Sweden and Norway saw it curbing growth in their strong economies.
"The behaviour in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock market crash of 1987," the Wall Street Journal quoted the former US Federal Reserve Chairman as saying in its online edition on Friday.
Hedge fund Long-Term Capital Management controlled $100 billion of assets in 1998 but collapsed in the wake of a Russian debt crisis, wreaking havoc in many derivatives markets. Greenspan took over as Fed chief shortly before the Dow Jones share index slumped 23 percent in a day in October 1987.
Sweden's central bank raised interest rates by a quarter point to 3.75 percent on Friday and stuck to its assessment that more tightening would be needed, but said market unrest was putting some downward pressure on an otherwise buoyant economy. The Riksbank said troubles stemming from the US home loan market were expected to subdue growth to some degree.
"It is reasonable to assume that this will have some negative consequences for growth abroad and in Sweden. It is as yet too early to determine the extent and duration of these effects," the central bank said in a statement.
Its counterpart in oil-rich Norway took a similar line, saying lower global growth caused by the liquidity crunch may hit its forecasts for economic development and interest rates. "Turbulence in international financial markets in recent weeks has heightened the uncertainty concerning developments ahead," Deputy Norges Bank Governor Jarle Bergo said.
Forecasts for interest rates have altered dramatically since the credit crisis, stemming from mass defaults on US subprime mortgages lent mainly to poor people, prompted banks to clam up on lending as they strive to calculate exposure to the sector.
The European Central Bank, Bank of England and their equivalents in Australia and Canada all left rates on hold this week. Until recently, they had all been expected to tighten policy sooner rather than later. ECB President Jean-Claude Trichet said on Friday his bank was still poised to act on inflation risks, but the mood of uncertainty meant no change in rates was imminent.
"Given this high level of uncertainty, it is appropriate to gather additional information and to examine new data before drawing further conclusions for monetary policy," Trichet said in a speech to academics and analysts. But Dallas Fed President Richard Fisher said on Thursday it had yet to be determined if there was enough evidence in the US economy of a need to cut rates.
News of fresh subprime damage continued to keep investors on edge. Data on Thursday showed US homes going into foreclosure hit a record in the second quarter. Lehman Brothers Holdings Inc said it would fire another 850 workers or about 3 percent of its workforce as it scales back mortgage lending operations globally.
And various estimates showed corporate financing markets under strain, with some $300-$500 billion of commercial paper due to be rolled over before the Fed meeting. Central banks have poured money into money markets over the past month to tame sky-high rates, but with limited success.
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