World Banks Pump $US360bn into global markets

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World banks, led by the US Federal Reserve, are pumping $US360 billion ($450 billion) into global markets in a coordinated effort to avert a lock-up of the financial system.

The Fed, along with the central banks of Canada, England, Europe, Japan, and Switzerland are trying to ease the liquidity of global markets after sharemarkets plunged 4% in the US on Wednesday.

"This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks," the US central bank said today in a release on its website.

The ECB and the Bank of England said they would each offer up to $US40 billion in overnight funds. The Fed said it would authorise $US180 billion expansion of temporary foreign currency swap arrangements and Bank of Japan announced it would launch dollar-supply operations as part of the worldwide effort to tackle the dollar shortage.

"The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures,'' the ECB said in a statement.

The move follows the collapse of US investment bank Lehman Brothers, and the emergency rescue of Merrill Lynch by Bank of America. Wednesday the US government also announced the $107 billion bailout of AIG insurance group.

Overnight US dollar funding costs fell to 2% after the central bank action, compared with around 5% the previous day in Europe and as high as 8.5 percent in Asian trading on Thursday.

"Obviously it does not tackle the underlying root causes of the problem, but it does help to release some of those immediate tensions that have been building up in the money market,'' Ian Stannard, senior currency strategist at BNP Paribas.

Earlier on Thursday central banks in Japan, Australia and India pumped a further $28 billion into money markets while China relaxed its policy for the second time this week.

South Korea sold dollars in the swap market and said it would try to halt the slide in bond prices, the Philippines intervened to support the peso, and Taiwan warned it could use a state fund to prop up stocks as markets whipsawed across the region facing it toughest test since the Asian financial crisis of 1997.
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