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FRANKFURT : Central banks redoubled efforts Friday to get the global financial system through its worst crisis in decades, adding to the hundreds of billions of dollars already injected into markets this week.
With stock markets boosted by news that Washington was cobbling together a government vehicle to take on banks' bad debts, the Bank of Japan led the way, making two fresh injections totalling three trillion yen (28.3 billion dollars).
The BoJ has made emergency injections twice daily for the past four days, and the latest brings the total to 11 trillion yen since Tuesday.
The European Central Bank (ECB) meanwhile freed up 40 billion dollars and the Bank of England offered 40 billion dollars (28 billion euros) to financial institutions struggling to obtain funds amid a worldwide squeeze on credit.
The US Treasury said meanwhile it would guarantee US money market funds up to an amount of 50 billion dollars in order to ensure their solvency in another move to shore up the financial sector.
"Money market funds play an important role as a savings and investment vehicle for many Americans," the Treasury said in statement.
"They are also a fundamental source of financing for our capital markets and financial institutions. Maintaining confidence in the money market fund industry is critical to protecting the integrity and stability of the global financial system," the statement said.
It added that the guarantee "should enhance market confidence and alleviate investors' concerns about the ability for money market mutual funds to absorb a loss."
Since the credit crunch began 14 months ago, distrust about the quality of assets being offered as collateral has spread through the money markets where banks obtain short-term funds.
The resulting drying up of liquidity became a drought this week with the demise of Lehman Brothers and the last-minute rescue of fellow Wall Street titan Merrill Lynch and the de-facto nationalisation of insurance giant AIG.
As a result, central banks have had to step up to the plate and fulfill their traditional role as the lender of last resort, making billions available for banks to borrow.
On Thursday the US Federal Reserve made 180 billion dollars of liquidity available to the central banks of the eurozone, Japan, Britain, Canada and Switzerland to help ease the pressures.
The US Securities and Exchange Commission said meanwhile it had followed authorities in Britain, Switzerland and Ireland in temporarily banning short selling of shares in certain companies -- a step designed to remove one of the speculative pressures on banking stocks.
Short-selling occurs when investors sell stock they do not yet own in order to profit later from an anticipated fall in prices -- often contributing to the price fall.
The US government's efforts helped to boost stocks worldwide.
On Wall Street, opened up 3.58 percent, having added 3.5 percent Thursday. In London, the FTSE 100 index of leading shares was up more than nine percent, Paris added 7.54 percent and Frankfurt put on more than five percent.
Hong Kong shares closed up 9.6 percent, Shanghai soared by nearly 9.5 percent and Tokyo closed up 3.76 percent.
"We think the new approach is indeed a lifeline, and contains elements that will boost investor confidence and thus stabilize markets," Unicredit economist Nikolaus Keis said.
But he added: "The financial crisis is, however, not yet over; the risks remain high. The Damocles Sword of a credit crunch is ... hanging over the US economy, and the risk of recession is still with us."
Treasury Secretary Henry Paulson said Friday a rescue plan for the troubled US financial sector would cost "hundreds of billions" of dollars.
- AFP/ir
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