America’s sub-prime mortgage crisis spread to the heart of Europe yesterday when BNP Paribas, France’s biggest bank, suspended three asset-backed securities funds in a move that sent global stocks down.

Analysts said that other European banks were likely to follow as buyers fled funds embroiled in the US mortgage meltdown. BNP Paribas Investment Partners suspended three funds worth a total of 2 billion euros (£1.35 billion) - Parvest Dynamic, ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia.

All withdrawals were frozen and the bank, France's biggest by market value, said that the move was dictated by its inability to value the funds after a flight by investors.

The bank said in a statement: "The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating."

The move took dealers by surprise a week after Baudouin Prot, chief executive of BNP Paribas, said that the bank was unaffected by the wave of defaults on high-risk home loans in the US.

A dealer in Paris said yesterday’s announcement amounted to a emergency U-turn. “Basically, BNP is now saying it’s got major problems with the credit market,” he said.

But Alain Papiasse, head of Asset Management & Services at BNP Paribas, said that the funds had been suspended not because they were in jeopardy but because they could no longer be priced accurately.

“When there is no longer price, you have to be careful about the value of the funds,” he said. “Technically you cannot calculate the value of the asset.” He insisted that the three funds remained “of quality” and would be reactivated as soon as liquidity returned to the market.

Pierre Flabbée, an analyst at Keppler Securities in Paris, said that the suspension followed a “very, very rapid” desertion of buyers in recent days. “It’s difficult to imagine this is going to end with BNP Paribas,” he said.

As bank shares tumbled across Europe, the German Bundesbank hosted a meeting in an attempt to organise 3.5 billion euro buyout of Europe’s first victim of the sub-prime crisis, lender IKB. The rescue began last month when Germany’s state-owned development bank, KfW, took on $8.1 billion (£4 billion) of IKB’s financial obligations.

On Wednesday, the Dutch NIBC Bank disclosed first-half losses of ¤ in the wake of the sub-prime mortgage turmoil.

An analyst in London said that the crisis was likely to spread. “There are potentially quite a number of banks in Europe and elsewhere who will have to do the same thing as BNP Paribas,” he said.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts