BEIJING - GUARDED optimism mounted on Tuesday for a unified international response to the credit crisis ricocheting around the world after Australia cut interest rates far more steeply than expected.

The focus shifted to how other central banks, from Japan to Europe, for their answers to a call from US officials for a 'forceful and coordinated' global reaction to kickstart anaemic bank lending.

Despair that such a solution had not yet been found weighed on some markets. Investors soured in particular on South Korea's ability to weather the storm.

But equities across Asia rallied after the Australian central bank cut its benchmark cash rate by 100 basis points, the first move of that magnitude since December 1994. The MSCI Asia ex-Japan stock index gained 0.6 per cent.

'If the need is there to get rates down toward something that's more neutral, then why dilly dally? Get it done in one go,' said Mr Brian Redican, an economist at Macquarie. 'It's a flexibility other central banks should take careful note of.'

The furious sell-off in global equities in recent weeks and the deepening freeze in credit markets has made this week's Group of Seven rich nations' meeting in Washington even more important.

'The key issue is coordination of policies, since individual country policies aimed at shoring up confidence of domestic institutions can actually exacerbate systemic risk by altering relative risk between countries,' said Mr Ashley Davies, a currency strategist with UBS in Singapore.

Speculation is swirling that China, with US bonds making up the lion's share of its US$1.81 trillion (S$2.64 trillion) in foreign exchange reserves, the world's biggest stockpile, could have a key role to play in any global response.

But Mr Liu Mingkang, the country's banking regulator, denied that Beijing might ride to America's rescue by pumping cash into the United States.

Sell-off
In the second full day of global trading after the US Congress approved a US$700 billion bailout intended to reassure markets, it was clear that whatever reassurance had been delivered was insufficient.

Instead, a crisis that began with the overheated US property market was still rocking confidence worldwide. Japan's Nikkei index of leading shares was down 2.0 per cent after earlier falling to its lowest level since December 2003.

Even after late-day gains, the Dow Jones Industrial Average closed down 3.5 per cent on Monday, capping its biggest four-day points loss since September 2001.

Looking to avoid potential trouble spots in the global storm, investors turned against South Korea, worried about the country's relatively high level of debt.

The South Korean won dropped 5.7 per cent to the lowest in more than seven years against the dollar, despite assurances from the government that Asia's fourth-largest economy was not facing a currency crisis.

Emerging markets, which had gained mightily from the surging global expansion in the last three years, were sucked into the vortex. Trading was halted in markets as far afield as Brazil and Russia when stocks plunged.

Mexico's peso sank to its weakest level since the currency was allowed to float in the mid-1990s, and stocks plunged.

'We are in a state of panic. Markets are out of control,' said Mr Bertrand Delgado, an economist at IDEAglobal who covers Latin America.

Brazil's government unveiled a flurry of new economic, the latest in a series of steps aimed at insulating the country's financial system from the global credit crisis. The government will issue a decree allowing the central bank to acquire loan portfolios of small and mid-sized local banks if needed.

Frozen credit
The banking upheaval that began on Wal Street has effectively shut down interbank and other loan markets, pushing industrialised countries closer to recession. Conditions remained poor for interbank lending. Fed fund futures have priced in a probability of a 75 basis-point cut by the US central bank this month.

Federal Reserve Bank of Dallas President Richard Fisher, considered an inflation hawk, said capital markets were in 'semi-panic'.

'What I'm more worried about is how dysfunctional the system has become and what we, as the lender of last resort, need to do to encourage the liquidity to flow,' he said.

Even as Sweden, Austria and Denmark followed Germany's lead by offering improved deposit guarantees to depositors, investors from Tokyo to London continued to slash risk and positioned themselves for a further tightening of credit.

Oil prices fell below US$90 a barrel and have dropped nearly 40 per cent from their peak, pushed lower with other commodity prices by worries about a looming recession.

With the US presidential election less than a month away, the campaign remained overshadowed by the debate about how to confront the worst banking crisis since the Great Depression.

Mr Richard Fuld, the head of Lehman Brothers Holdings, told Congress that banking regulators knew exactly how the failed investment bank was pricing its distressed assets and about its liquidity in the months before its collapse. -- REUTERS