Central banks unleash rate cut offensive against finance turmoil AFP

Central banks unleash rate cut offensive against finance turmoil AFP -

LONDON (AFP) - - Major central banks launched coordinated interest rate cuts on Wednesday in a new gamble to counter the global financial crisis but failed to quell panic on global stock markets.
The rate cuts and Britain's move to pump 87 billion dollars into stricken banks were designed to underpin shaky confidence in the financial system.
But while the move brought temporary respite, London's main index soon fell back again and US stocks endured another rollercoaster ride, while Tokyo saw its biggest one-day fall in two decades.
The US Federal Reserve, the European Central Bank , Bank of England and central banks in Sweden and Switzerland all joined the new interest rate offensive, cutting rates by half a percentage point. China joined in cutting 27 basis points off its key rate.
The central banks highlighted in a joint statement that they had cooperated in "unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets" during the crisis.
They said inflationary pressures were easing as oil and other commodity prices fall due to the credit crunch cutting demand and so "some easing of global monetary conditions is therefore warranted."
Political leaders welcomed the cuts. "It is important and helpful that central banks are working in a coordinated way to deal with stress in the financial system," White House spokesman Tony Fratto said.
German Chancellor Angela Merkel said it would "help build confidence" in the global economy and French President Nicolas Sarkozy, current EU president, called it a "very important decision."
Neither the rate cut nor Britain's costly initiative to hold up the banking system could halt another market freefall.
Panic selling hit Asian stock exchanges and a drop of 9.38 percent in Tokyo prompted Japanese Prime Minister Taro Aso to voice "huge fears" for the future of the world's second biggest economy. Hong Kong fell 8.2 percent and Sydney 5.0 percent.
While the initial impact of the central banks' move was to breathe some life back into the main European markets, the relief was only temporary.
The London stock market plunged 5.38 percent, with dealers saying investors were unconvinced that the rate cuts would stop the rot.
Wall Street also remained volatile, rebounding from an opening plunge. The Dow Jones Industrial Average was trading 89.28 points (0.95 percent) higher at 9,536.39 around 1350 GMT, after initially plummeting 149.34 points.
"The central banks have to cut their rates further ... we have lost too much time," Robert Halver, a strategist at Baader Bank in Frankfurt told AFP.
Unveiling a package which will see Britain's eight main banks part-nationalised, Prime Minister Gordon Brown said "the global financial market has ceased to function" and needed "bold and far-reaching solutions."
The government said it would use 50 billion pounds (64 billion euros, 87 billion dollars) to buy stakes in HSBC, Royal Bank of Scotland, Barclays, HBOS, Lloyds TSB, Standard Chartered, Abbey and Nationwide Building Society.
It would also make available 200 billion pounds in short-term loans and issue 250 billion pounds to guarantee loans between banks.
Royal Bank of Scotland and HBOS, whose shares have suffered heavy recent losses, said they would take part in the recapitalisation part of the scheme but other banks including HSBC and Standard Chartered said they would not.
It hoped the measures will overcome the banks' reluctance to lend to each other -- the root of the financial crisis.
Brown also called for a "European-wide funding plan" to help ease the global financial crisis and said proposals had been made to other nations.
Britain's initiative followed desperate efforts by other governments and institutions.
The European Central Bank said it would pump 70 billion dollars into interbank money markets in one-day loans Wednesday, raising the daily amount by 20 billion dollars.
The US Federal Reserve said Tuesday it would buy up short-term corporate debt -- sharply extending its role in the economy -- and central bank chairman Ben Bernanke strongly hinted that a US interest rate cut was on the cards.
President George W. Bush discussed the economic meltdown with leaders of Britain, France and Italy, seeking a common strategy ahead of crisis talks between the Group of Seven major economies in Washington on Friday