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Wall Street woes: why world's investors sit on sidelines

Job No. 1 for central bankers: restore confidence in markets.

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Chinese officials are also unlikely to allow a Chinese bank to buy a US institution outright, since running such a complex company would be too technically challenging for inexperienced Chinese bankers, says Mr. Cavey. "It is not impossible that the CIC or a big Chinese bank might buy a stake in a struggling US institution."

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Other Asian and Middle Eastern sovereign wealth funds will probably be equally wary, says Mr. Xie. "The Wall Street guys have a credibility problem."

When those funds threw lifelines to Western financial institutions last time "they were convinced that these were still good businesses that had temporary problems" says Xie, pointing to the $4.4 billion dollars that the Singapore government's sovereign wealth fund invested in Merrill Lynch in December 2006.

"They've lost tons of money," Xie points out. "They are less eager to get involved this time in a recapitalization effort."

Some Japanese analysts take a somewhat longer-term view. "The next six to nine months will continue to be difficult," says Hiromichi Shirakawa, chief economist at Credit Suisse in Toyko. "People are seeing the US markets as not a great place to invest, but that's a short-term thing."

In the meantime, he says, "investors are stepping back and watching to see if things stabilize."

One positive aspect, he says, is that the US is tackling the financial problems much faster than Japan did when it had banking problems in 1991. It took the Japanese 12 years. "The US is much more flexible," he says.

Some Japanese economists say they were encouraged by the AIG bailout. "If they hadn't done that, international investors would have been anxious about the US market," says Yoshimasa Maruyama, an economist at BNP Paribas Securities Japan Ltd. in Toyko. "The action was key to reassuring international investors."

In fact, some foreign analysts believe the financial turmoil may be close to ending. "Big players like Lehman, AIG, Merrill Lynch, I don't feel there are a good many more of these in the pipeline," says Mike Lenhoff, chief strategist at Brewin Dolphin in London. But, he adds, "Everyone is cautious right now. We will need to see stability."

Peter Ford in Beijing, Amelia Newcomb in Tokyo, and Mark Rice-Oxley in London contributed to this report.

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