The Warsaw Stock Exchange plunged as international stock markets tumbled on persistent worries about U.S. housing loan problems and potential damage to the global economy. However, there is every indication that the slide in Warsaw was only a short-lived correction rather than the beginning of a prolonged bearish trend, analysts said.

WSE investors were hardest hit on Thursday, Aug. 16, when all the indexes fell from one hour to the next. In the end, the benchmark WIG index of 285 companies dropped by 6.1 percent. Previously, a comparable drop was recorded in April 2000 when the WSE was in the middle of a months-long bear market. The WIG20 blue-chip index shed 5.4 percent, and shareholders in small and medium-sized companies lost the most. In total, 121 companies dropped by more than 10 percent in a single session.

Elsewhere in Europe, stock indexes plunged by 2-3 percent. Emerging markets were among those hardest hit, with the Turkish stock market nose-diving by more than 7 percent.

Beginning July 10 investors throughout the world began to closely watch real estate and mortgage market developments in the United States. At the time, two rating agencies announced plans to lower their recommendations for securities tied to mortgage loans and change the method of valuing them. Earlier, American investment bank Bear Stearns, which actively invested in bonds tied to mortgage loans, declared insolvency, followed by the bankruptcy of two of its funds.

Concerns about mortgage loans started to become real when Countrywide Financial, an American mortgage loan provider, announced that its profits had dropped by one third and that the crisis might spread to other sectors of the U.S. economy. As a result, investors began to sell their shares.

The next big sell-off on global markets that affected the WSE was triggered by the closure of two funds investing in the United States that belonged to the largest French bank, BNP Paribas. At the same time, news began to circulate around the world that the European Central Bank had supposedly injected $130 billion into the banking system.

In response to the slides on financial markets, the U.S. Federal Reserve System Aug. 17 cut the discount rate from 6.25 to 5.75 percent in order to reduce the difference between the prime rate and the federal funds rate to 50 basis points. In the wake of that move, the New York Stock Exchange finished the session on an optimistic note, its key indexes gaining. Other stock markets also rebounded, including the Warsaw Stock Exchange, whose WIG broad market index regained 1.8 percent.

Since the latest spate of declines began on the WSE just over a month ago, many investors have lost most of the money they had earned during the previous five-month rally. After the latest slides, the WIG is back to its end-of-January level-even though as recently as the start of July the WSE was doing better than ever. Its WIG index hit an all-time high of 67,568 points July 6 only to plummet in the following days. But this was still a long way from a real crash.

Most analysts do not see a direct link between the American problems and the fundamentals of the Polish economy. Experts also point to Poland's stable economic situation. As the prices of some companies have fallen substantially, many long-term investors may be encouraged to buy. At the same time, there is no point in waiting for an improvement until the turbulence on world markets subsides, experts say.

To an extent, those holding shares in investment funds may determine what happens next. If they rush to withdraw their money, they will force asset managers to sell shares, but if they put their decisions on hold and use the time to buy new shares instead, big slides may be avoided, especially as the country's good economic performance is favorable to the stock market.

Polish deputy prime minister and finance minister Zyta Gilowska says the situation on the WSE should not harm the economy as a whole, because "the Polish economy has strong fundamentals." The stock market slide "may have an effect on the financial system, but this will depend on how fast the negative loan sentiment around the world reaches our exchange, how permanent the reaction is and how investors behave," Gilowska said. "If there is panic, there may be an outflow of capital that will affect exchange rates, influence imports and exports and have an effect on inflation. That, in turn, might influence interest rates." Gilowska said the latest signs of investors withdrawing their money from the Polish market would not be permanent, as shown by exchange rate movements. Although the zloty has weakened, the drop is only marginal, while Poland remains an attractive market for investors, Gilowska concluded.

WSE President Ludwik Sobolewski said that the latest tumble on international stock markets is temporary. Sobolewski added that the Polish economy as a whole continues to prosper with no fundamental threats to its further growth.