Six central banks flood markets with cash (Roundup)

Frankfurt - Six major central banks pumped billions of US dollars of extra short-term credit into the world's financial markets Thursday, amid fears that this week's crisis was drying up liquidity.

European share prices steadied after the joint operation, which was triggered by the growing reluctance of commercial banks to lend one another money in a week where one financial institution after another has succumbed.

Commercial banks scrambled for the new money in Frankfurt, with 61 banks bidding for 100 billion dollars in an auction quickly organized by the European Central Bank (ECB).

The money came from the US Federal Reserve by way of swaps. The Fed said the joint operation had made available 247 billion dollars outside the United States to bridge shortfalls of dollars, thus quadrupling dollar availability.

The swap arrangements were to last till January 2009.

The biggest taker, the ECB, said its dollar funding operations would more than double from the existing 50 billion dollars to 110 billion dollars. The measures were 'designed to address elevated pressures in the short-term US dollar funding markets.'

The ECB said it lent a total 40 billion euros Thursday in the initial auction, setting the minimum interest rate at 4.0 per cent. Commercial banks can borrow the central banks' dollars by using their own financial assets as security.

Thursday's injection was the latest of a several interventions by central banks this year to ward off a crisis.

The Swiss National Bank is to inject 27 billion dollars into markets and the Bank of Japan (BOJ) valued its part in the currency swap with the Federal Reserve at 60 billion dollars. The Bank of Canada was also involved.

The Bank of England said it would pump 40 billion dollars into markets.

'These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,' the Bank of England said.

European share prices steadied after the cash injections.

Germany's bellwether index, the DAX, rose 0.9 per cent to 5913 by early afternoon. London's FTSE 100 index rose 1.6 per cent to 4989. The CAC 40 in Paris gained 0.6 per cent to 4025.

Robert Halver, a markets analyst at Baader Bank, said in Frankfurt, 'The central banks are letting liquidity flood through every crack to stop the domino effect among financial institutions.'

He was referring to the series of crises that began with Monday's failure of Lehman Brothers in New York and culminated Thursday in British bank Lloyds taking over mortgage lender Halifax Bank of Scotland for 12.2 billion pounds.