Central banks' to pump $247 bln to soothe markets (UPDATED)

The package of up to $247 billion comes from the U.S. Federal Reserve, the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan.

 

The injection of cash, which amounts to an expansion of up to $180 billion in available funds, is an effort to fuel economic activity.

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The Fed increased the amount of dollars that the ECB, BOJÂand other counterparts can offer from $67 billion "to address the continued elevated pressures in U.S. dollar short-term funding markets."

 

Under the plan, the European Central Bank will inject up to $110 billion, the Swiss National Bank up to $27 billion, the Bank of Japan up to $60 billion, the Bank of England up to $40 billion and the Bank of Canada up to $10 billion.

 

"We're very grateful that the rescue package has been put on the table, because frankly the world's inter-bank markets are just simply not working in the manner that they should do," David Buik of the BGC Partners brokerage firm in London, told CNN.

 

"There's a wholesale mistrust ... amongst everybody." "It is essential that the central banks do stand there and massage the trust back into action," Buik said. "Without them, we would be in unbelievably uncontrollable turmoil."

 

The action is the latest attempt by central bankers to coordinate their response to the financial crisis which deepened this week after Lehman tumbled into bankruptcy, Merrill Lynch & Co. was sold and the U.S. government bailed out insurer American International Group Inc. Central bankers had this week pushed more than $200 billion into markets with those in Japan and Australia doing so again Thursday.

 

LACK OF CONFIDENCE

Finance officials have struggled to restore confidence in markets this week as investors stockpiled money amid mounting concern more banks will follow Lehman Brothers Holdings Inc. into bankruptcy.

 

The cost to hedge against losses on U.S. government debt climbed to a record on Wednesday the U.K. government was forced to sponsor a rescue of mortgage lender HBOS Plc and Russia poured money into its banks.

 

"There's a complete lack of faith in the markets," said Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London. "There's a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act," he told Bloomberg.

 

Financial markets welcomed the announcement by pushing the cost of borrowing in dollars overnight to 3.84 percent from 5.03 percent yesterday. It was 2.15 percent last week and reached its highest since 2001 on Sept. 15.

 

PLAN CHEERS MARKETS

News of the central banks' plan cheered stock markets in Europe, with Britain's FTSE-100 up nearly 2 percent, Germany's DAX and France's CAC 40 indexes up nearly 1.5 percent each

 

Russia's main stock exchanges suspended trading for a second consecutive day as the government tried to stop plunging in share prices and restore confidence.

 

Hong Kong's Hang Seng sank more than 7 percent at one point on Thursday, but closed flat as Asia shares staged an afternoon comeback to partially recoup losses.

 

On Wednesday, the Dow Jones industrials tumbled 449 points -- its second worst day of the year, but only the second worst day this week. The Nasdaq and the S&P also suffered drops of more than 4 percent.

 

LIMIT DOUBLED

The Fed will spray the dollars around the world via swap lines with other central banks who can then auction them in their own markets. The ECB, Bank of England and Swiss National Bank allotted a total of $64 billion for one day today.

 

Under the new arrangements, the ECB doubled its limit of dollars it can get from the Fed to $110 billion and Switzerland's central bank can offer $27 billion, an extra $15 billion.

 

New swap facilities with the Bank of Japan, the Bank of England and the Bank of Canada amount to $60 billion, $40 billion and $10 billion, respectively. The arrangements are authorized until Jan. 30.

 

The ECB said it would offer $40 billion "for as long as needed" in overnight funds to the region's banks. It will also increase by $5 billion the amount it lends for 28 days and 84 days to $25 billion and $15 billion.

 

The Swiss National Bank will boost its 28-day auctions to $8 billion and the 84-day offering to $9 billion. Both were previously $6 billion.

 

USE AS NEEDED

The Bank of Canada said it has decided not to draw on its $10 billion swap facility at this time. The Bank of Japan, whose policy board held an emergency meeting today, said it will use its $60 billion as required by market conditions.

 

In auctions of their own currencies, the ECB today lent 25 billion euros in one-day money and the Bank of England 66.2 billion pounds in one-week loans.

 

Swap lines were first established in December when officials joined forces to boost dollar liquidity around the world after interest-rate reductions in the U.S., the U.K. and Canada failed to ease concerns about bank lending. The Fed increased its link with the ECB in July.