Central banks step in to stem market rout

New York: Central banks around the world cut interest rates in unison yesterday, responding to a worldwide clamour for concerted action to contain the worst financial crisis since the Great Depression.

The surprise announcement set off volatile trade in global stock markets, which have seen trillions of dollars in wealth wiped out over the past year. The Dow turned negative in see-saw morning trade after European stocks nose-dived six per cent.

It was the latest jolt in a worldwide crisis that has unsettled investment bankers and small investors alike, transformed Wall Street and reshaped the US presidential election.

Europe's financial sector was also in turmoil with Britain injecting £50 billion ($87 billion) of taxpayer money into its banks, and Iceland taking over two of its largest banks, abandoning support for its withering currency and seeking an emergency loan from Russia.

"Will it hold? That's the question," said Michael Farr, president of the investment firm Farr, Miller & Washington.

The US Federal Reserve said it was cutting its key federal funds rate by half a percentage point to 1.5 per cent and China, the European Central Bank and central banks in Britain, Canada, Sweden and Switzerland followed suit.

The coordinated cuts included China for the first time.

The Bank of Japan said it saw no need to cut Japan-ese interest rates but that it strongly supported the coordinated action.

Earlier, Hong Kong unveiled a surprise rate cut, slashing its main interest rate 100 basis points to match a similar cut by Australia a day earlier.

The International Monetary Fund issued its bleakest forecast in years, saying the world economy was set for a major downturn with the United States and Europe either in or on the brink of recession.