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Central banks around the world cut interest rates

Section: Daily Dispatches

By Keith Weir and Daniel Trotta
Wednesday, October 8, 2008

Central banks around the world cut interest rates in unison on Wednesday in a joint response to the global financial crisis, giving a boost to battered stock markets.

The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden, and Switzerland also cut rates in the coordinated response which analysts had been demanding.

U.S. stock index futures leapt on the news and world stock markets trimmed their losses.

Before the rate cut, stock markets across the world had continued their downward spiral amid the worst financial crisis in nearly 80 years and fears of a global recession.

"The fact that we have got them coming across the board suggests that this is the end game," said Peter Dixon, an economist at Commerzbank in London. "Will it help the markets? Questionable in the short term."

The cuts followed days of calls for concerted action by economists and world leaders after repeated attempts by central banks to inject liquidity into world markets failed to halt a crisis of confidence.

"The central banks of the world have finally woke up to the gravity of the current situation," said Charles Diebel, the head of interest rates strategy at Nomura. "This is a major step to convincing the world that they are serious about stabilizing."

Britain had earlier offered to pump at least 50 billion pounds ($87.2 billion) into its biggest retail banks to help them survive the crisis.

British Prime Minister Gordon Brown said the global financial market had ceased to function after bad debts stemming from a collapse in the U.S. housing market poisoned the system.

Hong Kong had earlier followed Australia's lead in slicing a full point off its interest rates amid increasingly strident calls for a coordinated, global monetary policy response.

The Bank of Japan, which did not join the world's central banks' coordinated rate cuts, said it will study ways to improve its market operations to enhance stability of financial markets.

The U.S. approved a $700 billion package last week to rescue its ailing banks -- although its stock market has continued to plunge -- and governments across the globe are now pushing ahead with their own emergency measures.

... Iceland Suffers; Toyota Too

The crisis has caused turmoil in once- flourishing economies.

Facing financial meltdown, Iceland has taken over two of its largest banks -- Landsbanki and Glitnir -- and is seeking a 4 billion euros ($5.4 billion) loan from Russia.

In the latest sign of gloom, corporate bankruptcies in Japan jumped 34.5 percent year-on-year, a research firm said.

A company source said carmaker Toyota Motor Corp may cut its annual profit outlook on sluggish global demand and a weaker yen.

U.S. presidential candidates John McCain and Barack Obama sparred over taxes and the economy on Tuesday in Tennessee in a head-to-head debate ahead of the November 4 election.

"Americans are angry, they're upset and they're a little fearful," said McCain, a Republican senator from Arizona. "We don't have trust and confidence in our institutions."

Obama, a Democrat senator from Illinois, said the financial crisis was aided by financial deregulation supported by McCain and Republicans. He said middle-class workers, not just Wall Street, needed a rescue package that would include tax cuts.

"We are in the worst financial crisis since the Great Depression, and a lot of you I think are worried about your jobs, your pensions, your retirement accounts," Obama said.

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