New tremors shake UK, Swiss and Freddie

LONDON (Reuters) - Spiraling fears on Tuesday about the depth of the global credit squeeze hammered British and Swiss financial firms known to be exposed to the crisis, as America's Freddie Mac (FRE.N) posted a heavy third quarter loss.

Last week's more positive tone, when a string of hefty write-offs by major banks was greeted by rallies in their shares on the basis that the damage was at least known, now looks like nothing more than a false dawn.

Freddie Mac, the second-largest U.S. mortgage financer, posted a $2 billion third quarter net loss, wider than forecast, hit by a weak housing market and increased foreclosures. Through Monday's close, its shares have lost about 45 percent this year.

Shares in UBS AG (UBSN.VX) tumbled, but then clawed back, on concerns the Swiss-based bank will suffer additional losses due to exposure on assets hit by the U.S. subprime mortgage crisis.

No spokesman was available for comment but UBS moved last week to douse rumors of an $8 billion write-down to follow $3.4 billion in mainly subprime-related losses in the third quarter.

"Although UBS confirmed again last week that it would have a profitable fourth quarter, rumors are growing today again about a further write-down worth $9 billion," said analysts at Vontobel in a note.

Shares in Swiss Re (RUKN.VX) were briefly suspended after they too dropped sharply. On Monday, the world's largest reinsurer said it expected a $1.07 billion write-down from exposure to credit default swaps.

In Britain, trading in Northern Rock NRK.L stock was halted after it slumped nearly 50 percent, before rebounding as an informed source said U.S. buyout firm JC Flowers had submitted an offer for the lender, as the authorities desperately cast around for a buyer.

The stricken bank was forced to go to the Bank of England for emergency loans two months ago, as the global squeeze on credit caused its funding strategy to collapse, prompting the first run on a British bank since the 19th century.

Compounding the British financial sector's troubles, buy-to-let mortgage lender Paragon (PARA.L) said it may need to raise 280 million pounds ($575 million) from shareholders because of difficulty raising funds in the credit crunch, prompting its shares to plunge nearly 40 percent.

The UK's third-biggest provider of mortgages for people who rent out property, has seen its stock plummet since September on fears it faced trouble raising funds in wholesale credit markets, as has Northern Rock.

On the money markets, interbank lending rates rose, with two-month euro rates hitting their highest level in 6-1/2 years, reflecting continued stress in the credit market.

GOLDMAN GLOOMY

U.S. banks have also taken a battering this week.

Most notably, Citigroup Inc (C.N) shares suffered a beating on Monday after Goldman Sachs downgraded the stock to "sell" and said the largest U.S. bank may have to write off $15 billion over the next two quarters.

Citi has already said it expected to write down up to $11 billion in the last part of 2007.

Goldman's downgrade, more than anything, was responsible for the sharp deterioration in sentiment worldwide.

With subprime U.S. mortgages -- lent to people ill-equipped to pay them back -- bundled up into complex financial products and sold on around the globe, uncertainty about where the exposure lies remains intense.

"We're not yet out of the woods. For that we would definitely need the U.S. market to regain some positive momentum, and that's not what we have currently," said Franz Wenzel, strategist at AXA Investment Managers in Paris.

Goldman also issued a gloomy report, saying housing prices were likely to fall much further, write-downs will mount and some mortgage insurers and financial guarantors will struggle to raise capital just to survive.

The value of collateralized debt obligations -- bonds based on pools mortgages -- related to subprime mortgages, could decline another $150 billion industry-wide, Goldman financial analysts wrote in a lengthy report.

That would be on top of the $18 billion financial firms globally wrote off in the third quarter and the $22 billion that some firms have indicated they expect in the fourth quarter.

Economists at Germany's biggest bank, Deutsche, said the chances of a global "growth" recession -- where growth dips to troughs below 2 percent -- were about one in three next year.

"The bursting of the housing and credit bubble this year and the ensuing credit and banking crisis have elevated the level of uncertainty about the economic outlook to an unusually high level," the Deutsche report said.