Pundits are still concerned that the worldwide credit crunch will not abate until the full extent of the U.S. sub-prime housing crisis is fully known.

Justin Urquart Stewart, at Seven Invesment Management said, “The market cannot start to get any composure until we can find out how much damage has been done.”

The prospect of millions of borrowers — mostly poor, black Americans — defaulting on payments they could never afford, has fueled concerns of a credit crunch, making it difficult for almost anyone to borrow money. The interbank lending market has been particularly badly hit.

In the three months to the end of June, Standard & Poor calculated that U.S. house prices fell by 3.2 percent, the steepest decline since 1987 when its records began.

Last week the S&P500 hit an all-time high, throwing off years of sluggish performance.

To underline that, just compare the S&P with Britain’s FTSE100. Over most of the past seven years, the Footsie has steamed ahead of its U.S. equivalent. In the last five years the UK index has leapt 50 percent compared with 12 percent in American markets. Over the past three years, the S&P500 has returned 30 percent set against 64 in the UK.

Since 2000, the U.S. index has fallen overall by 8 percent compared with a gain of 32 percent by the Footsie.

Peter Seilern of Seilern Investment Management responds, “People talk about the trade deficit which is no worse than many eurozone countries. And if you look at valuations, the S&P500 is trading at about 18 times earnings, which is neither cheap nor expensive. America has a culture of enterprise and some of the best managed companies in the world.”

Cormac Weldon, head of U.S. equities at Threadneedle, says, “There are now sound reasons for investors to reassess their allocation to the U.S. market.”

For the first time in 16 years, U.S. house prices have fallen, raising fears over the economy. This could in turn have a knock-on effect on the rest of the world.

This doesn’t seem to be an isolated incident, as the UK Land Registry is reporting a long-expected fall in the British property market — a 1.1 percentage fall last month, bolstered only by buoyant figures for London.

Standard & Poor’s/Case Shiller Index reports that American values fell 1.4 percent in the first quarter compared with the same period last year. They were also down 0.7 percent on the final quarter of 2006.

The OECD (Organization for Economic Cooperation and Development) warned that the spillover effect could be “more pronounced than generally expected”.