The credit crunch of 2007

LONDON (Reuters) - The severe financial market credit squeeze that emerged in early August had been brewing all year and policymakers warn of long-term consequences for the world economy.

Following is a timeline of key events in the crisis so far:

* Q4, 2006 - U.S. housing market slows after 2 years of steady increases in official interest rates. Delinquency rates on subprime loans rise to 13 percent from 10 percent seen in 2004 and 2005, leading to a wave of bankruptcies at subprime lenders. Interest rate spreads on Collateralised Debt Obligations, repackaged bonds and loans which included some subprime U.S. mortgage debt, widen sharply in December and January of 2007

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* Feb 8, 2007 - HSBC says more funds will have to be set aside to cover bad debts in its U.S. subprime lending portfolio. California's New Century Financial Corp -- the U.S.'s third-largest subprime lender -- said it expected a Q4 2006 loss. Spreads on non-investment tranches of home equity CDOs widen more than 200 basis points in the two days that follow

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* Feb 27 - Global equity prices plunge as jitters about the U.S. housing market combine with a 10 percent drop in China's main stock index

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* June 20 - Two Bear Stearns-managed hedge funds BSC.N announce double-digit losses through April after making bad bets on securities backed by subprime loans. They sell $4 billion of assets to cover investor redemptions and expected margin calls. Merrill Lynch sells off assets seized from the funds.