Central banks act as markets fall again

European stock markets have fallen sharply for the second day in a row, as the collapse of investment bank Lehman Brothers sparked fears about a financial crisis.

The world's central banks pumped huge amounts of cash into the financial system in an effort to calm the money markets, as interbank interest rates climbed to levels not seen since the credit crunch began last year.

In Dublin, the ISEQ closed down 155 points (3.7%) at 4,050, its lowest close in more than five years. AIB fell 56 cent to €6.95 and Irish Life & Permanent dropped 52 to €5.34. Building group CRH lost 75 cent to €17.70.

London's FTSE ended down 179 points (3.4%) at 5,026, with HBOS losing almost 22% of its value despite issuing a statement saying it had sufficient funding and a strong capital base. In Paris, the CAC shed 2% to 4,087 and in Frankfurt, the DAX was off 1.6% to close at 5,965.

US markets were stronger for a while, but fell back after the US Federal Reserve left interest rates on hold. Wall Street was also awaiting news of insurance giant AIG, which is reported to be in crisis talks aimed at staving off bankruptcy. The Dow Jones was down 1% at 10,810 after the Fed decision and the Nasdaq was also 1% lower at 2,157.

Earlier this morning, the Tokyo market closed at the lowest level for over three years but losses were exaggerated as the Japanese market had been closed yesterday owing to a public holiday and had to catch up on events. The Nikkei 225 index fell 605 points to end at 11,610, its lowest level since July 8, 2005.

Central banks have been pumping vast amounts of extra cash into world financial markets for a second day in an attempt to contain the fall-out from the crisis sweeping Wall Street's biggest firms.

The European Central Bank injected another €70 billion into money markets, while the US Federal Reserve has added another $70 billion in liquidity to help calm financial markets. The Bank of England and Bank of Japan made similar moves.