Concern over the wider market consequences of sub-prime mortgage losses incurred by internal hedge funds run by Bear Stearns has driven a key derivatives index based on the risky housing loans to a fresh low for the second time in a week.

The development comes after Merrill Lynch yesterday initiatied a firesale of Bear Stearns securities backed by sub-prime loans from assets following losses at the bank's High-Grade Structured Credit Strategies Enhanced Leverage Fund. The assets up for auction were seized by lenders after the US bank suffered heavy losses in April on bets on the market that buckled.