A fresh flood of margin calls and forced selling of shares might be unleashed as investors in Singapore scramble for cover from Wall Street's latest deluge.

This followed a 281-point dive in the Dow Jones Industrial Index last Friday, after the chief financial officer of a major United States investment bank, Bear Stearns, warned that the turmoil in the credit markets was the worst he had experienced in 22 years.

Phillip Securities managing director Loh Hoon Sun said yesterday: 'Share prices will go on a roller-coaster ride. This time, the sell-off looks serious, going by the way that stocks in New York tumbled on Friday.'

Indeed, many dealers expect the fall in share prices to mirror last Wednesday's sell-off when the Straits Times Index (STI) plunged by 115.95 points - its second-worst one-day drop this year - with fund managers racing to cut their exposure to stocks as US credit woes spread.

Selling pressure could also be exacerbated by 'short-selling' from hedge funds and traders - that is, as they sell off shares they do not yet own in the hope that, when they buy back to cover their positions, they would have made a profit from the falling stock price.

Among counters likely to be hit by the selldown are the region's bank stocks. This is because there are growing concerns over the banks' exposure to the crisis-hit credit market in the US through their holdings in a highly risky - but wildly popular - instrument known as collateralised debt obligations (CDOs).

CDOs are a type of debt backed by a pool of loans and bonds with different yields and maturities. The way they are bundled and sold to financial institutions means that an investor anywhere in the world might find himself inadvertently exposed to sub-prime loans in the US that have gone sour.

The fear now is that, after taking a hit to their balance sheets, banks could tighten up on credit, raising the costs of borrowing for companies and slowing the global buyout boom which had, until recently, propelled bourses such as Singapore's to record-high levels.

And any selldown in banks is likely to weigh heavily on regional stock indexes. About 29 per cent of the STI is made up of just three banking stocks - United Overseas Bank, DBS Group Holdings and OCBC Bank - while Hong Kong's Hang Seng Index is dominated by banking giants such as HSBC Holdings and Bank of China.

The rally experienced by construction stocks and some penny counters in Singapore last Friday now looks short-lived. They could come under pressure from fresh forced selling of shares, as retail investors, who re-entered the market late last week in anticipation of a stronger rebound, refuse to pick up their purchases.

The only relief in sight might come tomorrow when the US Federal Reserve holds its meeting to fix interest rates. Traders will be watching anxiously for gestures from Fed chairman Ben Bernanke indicating that he is ready to cut rates to ease the growing credit crunch now threatening to engulf global financial markets.

On the Singapore front, some traders stay hopeful that there will be a rally in share prices before the National Day celebrations on Thursday.

Expressing disbelief over the way appetite for shares has soured, day-trader Peter Ong said: 'The economy is booming and the property market is red-hot. This gloom is just out of step with the joyous mood experienced by the rest of Singapore as we celebrate National Day.'

engyeow@sph.com.sg