FRANKFURT/TOKYO - THE world's top central banks said on Thursday they will pump more than $180 billion (S$257.5 billion) in extra funds into global money markets in a coordinated effort to ease a funding squeeze triggered by the upheaval on Wall Street.

The European Central Bank joined forces with the US Federal Reserve and the central banks of Canada, Switzerland, Japan and Britain to boost supplies of dollar funds in global financial markets.

The ECB and the Bank of England offered $40 billion in one-day dollar funds, and Swiss National Bank will add up to $10 billion in the central banks' first-ever loans of overnight dollar liquidity.

The Fed said it was extending currency swap arrangements with other central banks by $180 billion to fund the extra liquidity operations, which come on top of central bank actions to pump in extra cash in their local currencies.

The Bank of Japan will also launch dollar-supply operations as part of the worldwide effort, news of which helped to ease some of the market jitters although analysts said it would probably have only a temporary effect.

'These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,' the central banks said in simultaneous statements released simultaneously just after 0700 GMT.

'The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.'

The concerted action follows a rout in financial markets, gripped by fears of more Wall Street failures after a week that saw Lehman Brothers file for bankruptcy, Merrill Lynch lose its independence and a $85 billion US government bailout of insurer AIG.

The announcements pushed down US and euro zone bond futures, boosted the dollar against the yen and cut dollar borrowing costs.

Overnight, US dollar market interest rates dropped as low as 2 per cent, matching the Fed's target rate, according to Reuters data. This compared with around 5 per cent the previous day in Europe and levels as high as 8.5 per cent in Asian trading on Thursday.

'Obviously it does not tackle the underlying root causes of the problem, but it does help to release some of those immediate tensions that have been building up in the money market,' Mr Ian Stannard, senior currency strategist at BNP Paribas.

Mr Takeshi Minami, chief economist at Tokyo's Norinchukin Research Institute, said the moves would help institutions facing problems in raising dollar funds.

'But this kind of facility can serve only as a stop-gap measure and it won't resolve the credit crisis. The focus is now whether the US government changes its stance about the use of taxpayer's money in resolving the under-capitalisation problem at US financial institutions,' he said.

Local measures too
In the first auction, by the BoE, banks took up only $14 billion (S$20 billion), a third of the funds on offer, at a weighted average rate of 3.802 per cent. The SNB and ECB results are due soon after 1015 GMT.

As well as the dollar funding, the ECB, BoE and central banks in Russia, Japan, Australia, Hong Kong and India took separate actions to inject funds in their local currencies.

The ECB called for bids for its third auction of one-day funds this week, setting no intended volume for the operation, while the BoE said it would roll over a sum of 25 billion pounds offered earlier in the week.

Earlier in the day, central banks in Japan, Australia and India pumped a further $28 billion into money markets while China relaxed its policy for the second time this week.

South Korea sold dollars in the swap market and said it would try to halt the slide in bond prices, the Philippines intervened to support the peso, and Taiwan warned it could use a state fund to prop up stocks as markets whipsawed across the region facing it toughest test since the Asian financial crisis of 1997.

Russia will assign 500 billion roubles (S$28 billion) to support and stabilise the stock markets, where trade will resume on Friday, the country's leaders said. President Dmitry Medvedev said that half of the 500 billion roubles will come from the budget, and that further measures could be taken if necessary.

News has emerged of takeovers or takeover talks involving No. 2 US investment bank Morgan Stanley, top US savings and loan Washington Mutual and major UK mortgage lender HBOS, reflecting the seismic change in the global financial landscape.

Well-oiled money markets, where banks lend short term funds to each other to smooth out daily swings in their balances, are crucial for the proper functioning of the financial system and the economy at large.

Banks around the world have responded to the squeeze, exacerbated by investors' flight into safe havens of gold and government bonds, by flooding markets with cash and verbal reassurances, but with only limited success. -- REUTERS