The European Central Bank and the US Federal Reserve have taken fresh action to ease tightening credit linked to the home loans crisis in the US.
The ECB added €40 billion in three-month funds to the money market to cut borrowing costs in one of the areas hardest hit by the US sub-prime crisis.
The measure, designed to encourage lending by banks, was the first time the ECB had made a three-month injection outside its normal monthly schedule.
The ECB made the offer of the funds on Wednesday, saying it was 'a technical measure aimed at supporting the normalisation of the functioning of the euro money market'.
In its latest move, the US Federal Reserve injected $17.25 billion into the financial system. That brought the total added to money markets by the Fed to $120.5 billion over the past two weeks.
Central banks around the world began a series of major cash infusions on August 9 in response to the home loans crisis in the US. The ECB has pumped more than €200 billion into markets in recent weeks.
In a bid to ease lending between banks, the US central bank on Friday made a surprise cut in its discount rate to commercial banks to 5.75% from 6.25%.
Analysts says banks are now reluctant to lend to each other because of the uncertainty sparked by the US sub-prime mortgage crisis. The Fed move sent US markets lower as it seemed to indicate that fears of a credit squeeze had not abated.
