Left in the Fog

The 13-member euro-zone's central bank provided 95 billion euros ($130 billion) in funds to banks on Thursday and an additional 61 billion euros on Friday. It was the largest direct intervention in the Frankfurt-based central bank's history.

"This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market," the ECB said in a statement released Friday.

The three-day "fine-tuning" operation was aimed at maintaining short-term rate stability after overnight rates banks charge each other to lend dollars reached six-year highs. Banks remain wary of lending due to concerns of overexposure to US subprime mortgage losses. Inter-bank rates Friday were as much as 0.27 percent over the ECB's benchmark of 4 percent.

An ECB spokesman acknowledged that Thursday's overnight liquidity injection was unusual, but said it had been motivated by the aim "to ensure orderly conditions in the money market."

Less lending could curb growth

Investors' main fear is that banks will toughen lending terms to cover losses already incurred by US subprime mortgages and to prevent further shortfalls. The result could be banks unwilling to lend cash to companies and consumers, which could drag down global economic growth.

"As private-sector banks, in a time of uncertainty, set aside more funds for their own funding needs, we are seeing a shortage of liquidity in the money markets," Societe Generale's chief Asia economist, Glenn Maguire, told the AFP news agency.

Although aimed at settling markets, the ECB's action, as well as a smaller fund injection Thursday by the US Federal Reserve, caused widespread anxiety on stock markets around the world. Wall Street fell sharply on Thursday's news, and the decline spread to Asian markets on Friday and to Europe at the opening, although European markets later recovered some lost ground.

"It's that unnerving effect of the unknown which is spooking investors at the moment," analyst Henk Potts of Barclays Stockbrokers in London told AFP. "Investors don't know which banks have got exposure (to the credit problems) and the extent to those potential losses."

In Germany, insurer Allianz, which owns Dresdner Bank, said it has seven billion euros of exposure to the US subprime market -- or about 0.16 percent of its 1.03 trillion euros in total investments.