Market surge

Stock markets continued a global rally on Thursday following the decision by the world's top central banks to cut the cost of providing US dollars to banks in an effort to boost liquidity in a fragile global economy.

Shares surged in Sydney by 2.64 percent, in Tokyo by 1.93 percent and in Hong Kong by 5.50 percent, while the euro currency hit a one-week high, peaking at $1.35 in trading on Wednesday.

The surprise announcement coincided with the opening of the stock market in New York on Wednesday, when the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the US Federal Reserve and the Swiss National Bank collectively declared they would provide "liquidity support to the global financial system."

Many banks, faced with downgraded bond ratings, have been under pressure to reduce lending, leading to follow-on effects for the global markets from affected eurozone areas. It was this worsening situation that led to the banks' offer of assistance.

"The joint action is designed to prompt an increase in lending, whilst at the same time reducing some of the strains under which credit lines are currently operating," Richard Hunter, head of equities at Hargreaves Lansdown, told the Associated Press.

"If the institutions now accept this invitation as intended, a great deal of tension will be removed from the system both in terms of liquidity and market sentiment."

The banks agreed to cut the cost of existing dollar swap lines by 50 basis points starting next Monday, among other measures.

The markets had started their rally earlier on Wednesday when China's Central Bank also moved to ease credit strains by cutting reserve requirements for its commercial lenders for the first time in almost three years.

Together with the coordinated move by the major central banks of the developed world countries, the Chinese measure came amid growing concern that the global economy is in jeopardy as the eurozone struggles to put the financial crisis behind it.

Good news, bad news

While markets and the euro did see substantial gains on the news, the EU's statistics service Eurostat released figures citing new record high unemployment for the 17-nation eurozone, at 10.3 percent for October.

European finance ministers meeting in Brussels also announced that they would increase the EU bailout fund, but might need to request additional help from the International Monetary Fund.

The banks' announcement was "undoubtedly a response to the growing euro crisis and the dark shadow it is casting over the world economy," economist Sony Kapoor of the Re-Define consultancy told Agence France Presse, saying it would provide "a useful cushion against Lehmann-like panic in the financial markets."

Author: Stuart Tiffen (AFP, Reuters, AP)
Editor: Martin Kuebler