WASHINGTON: With financial markets seeing fresh panic, US authorities have raised the prospect 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 (IMF) called for more coordination instead of unilateral action.

US President George W. Bush will make a statement on the global financial meltdown around 10 am (1400 GMT) Friday to assure Americans that their leaders are grappling with the crisis, the White House announced.

Stocks went into a new tailspin as panic took hold again on Wall Street, sending US indexes to fresh five-year lows. Some said short-sellers came back in force as regulators lifted a ban on the practice of betting on falling shares.

The White House denied reports that Bush had called a Group of Eight summit - an idea that Democratic congressional leaders nevertheless urged him to consider.

Also in Washington, officials revealed they were considering duplicating Britain's decision this week 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 ahead of a gathering of finance chiefs from the Group of Seven industrial democracies.

Paulson had indicated this is one option authorised by emergency legislation adopted last Friday that gives the Bush administration US$700 billion to buy up distressed assets from Wall Street.

In Berlin, Chancellor Angela Merkel said she could not rule out nationalising any German banks.

In Frankfurt, the European Central Bank opened up an unlimited cash lifeline for credit-starved institutions that would be available "for as long as needed," and at least until January 20, 2009.

In addition, the ECB pumped US$100 billion into markets in one-day loans, doubling the amount offered just two days earlier.

"The ECB has just taken decisive steps to unclog the interbank market," said Bank of America economist Gilles Moec.

But the financial crisis claimed new victims with Iceland's biggest bank, Kaupthing, nationalised. The move completed a state takeover of the Nordic island nation's top three banks as Iceland 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 closed Thursday because of the turbulence.

British Prime Minister Gordon Brown condemned what he called "effectively illegal action" by Iceland, as the BBC reported that almost 100 British local authorities have more than 720 million pounds (US$1.2 billion) in Icelandic banks.

The Dutch government said it will make available 20 billion euros to protect the financial sector against shocks from the world economic crisis and pledged to cover losses from depositors in Iceland's bank Icesave.

Belgium, France and Luxembourg meanwhile 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.

IMF chief Dominique Strauss-Kahn said European Union nations should work together and avoid unilateral steps.

"Cooperation and coordination in actions is the price of success. All kinds of cooperation have to be recommended," he said in Washington, adding that unilateral action "has to be avoided, if not condemned," Strauss-Kahn said.

Share markets saw brutal selling pressure.

US shares opened higher Thursday but quickly faded. The Dow Jones Industrial Average plunged 678.91 points (7.33 per cent) to end at 8,579.19 - the seventh straight loss for Wall Street's most-watched index and its first close below 9,000 since 2003.

The Nasdaq slumped 5.47 per cent and the Standard & Poor's 500 dropped 7.62 per cent.

"Continued nervousness about the economy and the inability of the Fed and the Treasury to break the logjam in the credit markets is pumping up the pessimism," said analysts at brokerage Charles Schwab.

"This cascading waterfall sell-off is ugly," added Barry Ritholtz at Ritholtz Research.

A European rally wilted just before the close of trade Thursday. 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.

- AFP/yb