Central banks in the U.S., Europe, Japan, Australia and Canada added about $136 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets.
The Federal Reserve, in a second day of action in concert with the European Central Bank, provided $38 billion of reserves and pledged more “as necessary,” in a statement unprecedented since after the Sept. 11, 2001, attacks.
Money market rates rose worldwide the past two days on evidence the subprime crisis is spreading after global investors piled into U.S. securities backed by mortgages. By the end of the day, the central bank actions helped spark a turnaround in American stocks and drive the U.S. overnight bank lending rate below the Fed’s target.
“They accomplished their short-term mission to make sure the market stabilized ahead of the weekend,” said David Resler, chief economist in New York at Nomura Securities International Inc. “It remains to be seen how much more they’ll have to do.”