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NEW YORK: US President George W. Bush promised more action to help stricken markets on Thursday as central banks staked billions of dollars to douse a firestorm of credit woes threatening to claim more victims.
The massive injection and the rescue of top British mortgage lender HBOS bolstered investor confidence, sparking a relief rally which saw Wall Street rise 1.27 percent in early trade.
The US government has already spent unprecedented amounts on market intervention and President Bush vowed more efforts.
"The American people can be sure we will continue to act to strengthen and stabilise our financial markets and improve investor confidence," Bush said at the White House.
"Our financial markets continue to deal with serious challenges," said Bush, who cancelled travel plans Thursday to monitor events.
British Prime Minister Gordon Brown insisted the priority must be to "ensure the stability of the (financial) system."
The US Federal Reserve led the charge to relieve "elevated pressures" in desperate global markets by offering 180 billion dollars and promising more.
Central banks have now spent more than 600 billion dollars this week to avert a global system failure. In addition, the Fed rescued US insurance titan AIG with 85 billion dollars, having allowed Lehman Brothers bank to fail.
The Fed was joined by the European Central Bank with the British, Japanese, Swiss and Canadian banks in offering to swap currencies for dollars, taking the total to some 300 billion dollars on offer.
"For the time being, this (central bank action) has stabilised the financial system," said Andrew Busch at BMO Capital Markets.
London's FTSE 100 index of leading shares was up 0.86 percent in late afternoon trade as HBOS shares rocketed 34.1 percent. The market had lost 10 percent over the first three days of the week.
Asian stocks ended with heavy falls on reports that Morgan Stanley, one of the last two independent US merchant banks, was in merger talks as its shares came under pressure, slumping 24 percent on Wednesday.
US reports said Morgan Stanley was seeking a merger with Wachovia Corporation or state controlled Chinese conglomerate CITIC. The Swiss market was alive with rumours that UBS, the country's biggest bank, might merge with Credit Suisse.
CITIC declined to comment on a report by CNBC television, quoting US and Chinese sources, that it was in talks with Morgan Stanley. The sovereign wealth fund, China Investment Corporation, already owns 9.9 percent of Morgan Stanley.
The New York Times said Morgan Stanley was in "preliminary" talks with Wachovia Corp.
US thrift bank Washington Mutual is also at the centre of market worries.
In Zurich, UBS shares, which had crashed more than 70 percent on sub-prime losses, rallied 10 percent with a boost from "rumours circulating on a merger between UBS and Credit Suisse," a trader there told AFP.
Russian President Dmitry Medvedev ordered his government to support the Russian financial system, saying it was the "most important priority" after the stock market in Moscow was closed for a third day in a row.
"We have enough reserves, we have a strong economy," Medvedev said. "The market will get all necessary support."
The global panic drove money to the safety of US Treasury bonds and gold, with some T-bond yields falling to their lowest level since 1954, leaving the interest rate landscape in chaos.
This contrasts with tension on interbank money markets, the heart of the banking system which has slowed critically because banks are frightened of lending to each other.
Sucden brokerage analyst Nimit Khamar in London said the "critical" factor for "any normality in the markets" was whether central bank action would bring down interbank rates.
Short-term interbank rates sent conflicting signals in Europe. London's overnight LIBOR dollar rate eased sharply to 3.84 percent but the eurozone one-week Euribor rate rose slightly to 4.557 percent.
The euro rose to a two week high of 1.45 against the dollar and the oil price rallied for a second day, to 102 dollars, because the central bank move had "sparked some interest" in dollar-based assets, Khamar said.
British authorities oversaw the takeover of Halifax Bank of Scotland (HBOS) by Lloyds TSB in an all-share deal worth 12.2-billion-pounds (15.4 billion euros, 21 billion dollars).
Prime Minister Brown said the world had to "clean up the financial system, and he slammed "irresponsible" behaviour in the financial sector, after the HBOS rescue which Britain's financial regulator said would "enhance stability". - AFP/de
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