FRANKFURT - THE European Central Bank (ECB) launched a three-day tender offer for 40 billion dollars (S$57.4 billion) on Friday to pump more liquidity into distressed money markets in coordinated action with other central banks.

On Thursday, the ECB sold 40 billion dollars in overnight dollar funds provided by a reciprocal currency swap arrangement with the US Federal Reserve, with bids totalling nearly 102 billion dollars, Dow Jones Newswires reported.

The ECB and other central banks have pumped hundreds of billions of dollars into markets this week to try to get to grips with the worst financial crisis in decades after the collapse of US investment bank Lehman Brothers.

Since the credit crunch began 14 months ago, distrust about the quality of assets being offered as collateral has spread through the money markets where banks obtain short-term funds.

The resulting drying up of liquidity became a drought this week with the demise of Lehman Brothers and the last-minute rescue of fellow Wall Street titan Merrill Lynch and the de-facto nationalisation of insurance giant AIG.

As a result, central banks have had to step up to the plate and fulfill their traditional role as the lender of last resort, making billions available for banks to borrow.

On Thursday, the US Federal Reserve made 180 billion dollars of liquidity available to the central banks of the eurozone, Japan, Britain, Canada and Switzerland to help ease the pressures.

The United States said on Thursday it was putting together a rescue plan to clear away the mountains of bad debt that have weighed down banks. -- AFP