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WASHINGTON: With anxiety still high in markets, US authorities raised the prospect Thursday of direct capital injections into troubled banks and Europe's central bank opened up an unlimited cash lifeline.
But finance officials from around the world were bickering ahead of a key gathering in Washington, and the International Monetary Fund called for more coordination instead of unilateral action.
The White House meanwhile denied reports that President George W. Bush had called a Group of Eight summit on the global financial crisis and Britain blasted Iceland for freezing bank accounts.
Also in Washington, officials said they were considering following Britain's move to inject capital in banks through special shares in an effort to unclog credit markets.
"These capital injections are something that (Treasury) Secretary (Henry) Paulson is actively considering," White House spokeswoman Dana Perino said Thursday.
The concept of capital injections "was a part of the rescue package that the president supported," Perino added.
Paulson said this is one option authorised by emergency legislation giving the administration US$700 billion to buy up distressed assets from a real estate meltdown.
German Chancellor Angela Merkel said she could not rule out nationalising any of the country's banks, following similar moves in other European countries such as Britain.
"No possibility can be fully ruled out," Merkel said in Berlin.
The European Central Bank meanwhile opened up an unlimited cash lifeline for credit-starved institutions at least until late January as it steps up the fight against a credit crunch.
The ECB will "satisfy all demand of counterparties," it said in a statement which declared that the weapon will be available "for as long as needed," and at least until January 20, 2009.
In another moved aimed at unblocking credit, the ECB pumped US$100 billion into markets in one-day loans, doubling the amount offered just two days earlier.
Bank of America economist Gilles Moec said: "The ECB has just taken decisive steps to unclog the interbank market."
But the financial crisis claimed new victims with Iceland's biggest bank, Kaupthing, nationalised. The move completed a state takeover of the country's top three banks as it battles national bankruptcy.
Iceland's banks have huge international influence and the troubles of Kaupthing, Landsbanki and Glitnir have left fallout across Europe, particularly in Britain where there are major Icelandic investments.
The Reykjavik stock market was completely closed Thursday because of the turbulence.
British Prime Minister Gordon Brown condemned the "effectively illegal action" by Iceland.
The BBC reported that the amount invested by almost 100 British local authorities in Icelandic banks is more than 720 million pounds (US$1.2 billion).
Belgium, France and Luxembourg came to the rescue of struggling Dexia bank for the second time in less than two weeks, pledging to guarantee money it borrows on markets.
After nationalising the group, the three governments offered the guarantee to avert a cash crisis at Dexia as lending between banks has come to a standstill.
The head of the International Monetary Fund, Dominique Strauss-Kahn, said European Union countries should work together and avoid unilateral steps to fight a global financial crisis.
"Cooperation and coordination in actions is the price of success. All kinds of cooperation have to be recommended," the former French finance minister said in Washington ahead of an IMF gathering.
Unilateral action "has to be avoided, if not condemned," Strauss-Kahn said.
Share markets came under fresh selling pressure after some early calm.
US shares opened higher but quickly faded and the Dow Jones Industrial Average was down 3.9 per cent, falling to fresh five-year lows after six days of steep losses.
A European rally wilted just before the close of trade. The London FTSE 100 index of leading shares fell 1.21 per cent. The Paris CAC 40 shed 1.55 per cent and the Frankfurt Dax lost 2.53 per cent.
Asian stocks nosedived in early trade Friday, with Japan's headline Nikkei-225 index losing 905.70 points or 9.89 per cent in early trade to 8,251.79. South Korea’s KOSPI index was down 66.32 points, or 5.12 per cent, to 1,228.57, while Australian shares plunged 7.4 per cent to 3,997.4.
"Trading will remain fragile for some considerable time, but we can hope that the worst of the panic might now be over," said Simon Denham, managing director at Capital Spreads in London.
The US administration on Wednesday put another US$38 billion into ailing American Insurance Group, after its first US$85-billion lifeline was mostly used up.
Fallout from the crisis spread further with the German government postponing an initial offer for a 24.9 per cent privatised stake in national railway Deutsche Bahn.
In one bright spot, Russia's leading stock markets closed 10 per cent higher, rebounding from record losses earlier this week.
The two main Russian stock indices have plummeted by more than 60 per cent since reaching record highs in May.
- AFP/yb
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