HBOS shares surge as move helps quell investor fears over state of banking sector.
In addition to the central bank plan, the US Federal Reserve also announced a temporary $180bn cash line to ease the strain on money markets.
The Fed said the move would “provide dollar funding for both term and overnight liquidity operations by other central banks”.
The plan to increase liquidity in money markets came after Asian financial markets performed poorly in Thursday trading.
Following Wall Street’s four per cent drop overnight, share prices on Hong Kong’s Hang Seng index plunged nearly eight per cent on Thursday, before recovering to finish flat.
Tokyo’s benchmark Nikkei index lost more than three per cent, South Korea’s Kospi fell more than two per cent and Australian shares also extended losses to 3.5 per cent in early trade.
The falls come in spite of the US government’s announcement that it would rescue the troubled insurance group AIG by lending it $85bn in exchange for a nearly 80 per cent stake in the company.
But European bourses recorded opening gains on Thursday after the British bank Lloyds confirmed it had bought out Halifax Bank of Scotland (HBOS) in a $22bn deal.
HBOS shares had been badly hit over the past week, losing more than two-thirds of their September 9 value.
William Browder, CEO of the investment group Hermitage Capital Management, told Al Jazeera that the current financial crisis demands immediate action.
“It is a problem of global proportions and it is not just happening in one country. I suspect that this is not going to be the last big action that the regulators take,” he said.
“In a moment like this, where everyone is competing with each other to sell everything, it is very hard to say that money is safe even under the mattress.
|Traders were exhausted by the tumult
on stock markets [Reuters]
“If the governments are investing millions into the markets, where is that money coming from? They probably printed it. Even the money under the mattress will be inflated away.”
With the markets losing value, investors have headed for safer ground, with gold futures making their biggest gains in two decades.
Share prices on Wall Street fell on Wednesday despite attempts by the US government to ease market concerns by bailing out AIG on Tuesday.
But the Dow Jones Industrial average slid 451.88 points (4.09 per cent) to 10,607.14 at the close of trading on Wednesday, its second massive loss in three days.
AIG had faced a cash crunch after $18bn of losses over three financial quarters, largely because it faced a rush of insurance claims from people who had defaulted on their property mortgages.
AIG’s bail-out brings to about $900bn the total of US rescue efforts to stabilise the financial system and housing market.