Traders and analysts will be returning to their desks in Wall Street today braced for further turmoil in the markets after last night’s move by the US Treasury.

Joseph Mason, associate professor of finance at Drexel University, said that shares in Fannie and Freddie could fall by as much as 20 per cent as investors worried about their shares being diluted. “The possibility of a cash injection is going to ricochet across the entire market and things are going to get pretty torrid.” he said. “The suggestion that the housing market is so bad that the Government needs to take such a drastic action will scare the market further.”

However, some analysts were hoping that shares in Fannie and Freddie could actually be bolstered if investors take heart from the swift response by Washington to shore up the mortgage companies. This could deliver a much-needed boost to the Dow Jones industrial average and the wider S&P 500 index of US blue-chip companies, which plunged into the grip of a bear market last week.

The latest uncertainty about Freddie and Fannie’s financial state comes at a time of heightened nervousness over the outlook for the US economy.

The Fed has made clear that, after cutting interest rates by more than three percentage points in eight months, it is now reluctant to reduce them below the present level of 2 per cent, amid mounting worries about rising inflation that have been exacerbated by spiralling oil prices.

As a $100 billion (£50.2 billion) package of tax cuts finds its way into consumers’ pockets, the Fed has pinned its hopes on a resurgence of economic growth in the second half of the year. It remains uncertain whether the US is in, or will be in, recession but many economists are sceptical about the Fed’s upbeat outlook.

Bond markets are also certain to scrutinise the implication of the cost of last night’s bailout.

The dollar, which has tumbled heavily over the past year, might also come under renewed pressure as the Treasury’s move adds to concern that the US economy remains under threat from the twin blows of the credit crunch and the housing market slump.

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