LONDON, Oct 8: Major central banks launched coordinated interest rate cuts on Wednesday in a new gamble to counter the global finance crisis as Britain launched a massive rescue of its banking system.

But while the move brought some temporary respite to European markets, London’s main index soon fell back while US stocks opened sharply lower.

The US Federal Reserve, the European Central Bank, Bank of England and central banks in China, Sweden and Switzerland all joined the new interest rate offensive, cutting rates by half a percentage point.

The central banks highlighted in a joint statement that they had cooperated in “unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets” during the crisis.

They said inflationary pressures were easing as oil and other commodity prices fell due to the credit crunch cutting demand and “some easing of global monetary conditions is therefore warranted”.

The Bank of Japan expressed “strong support” for the half percentage point rate cut but did not join in.

The action came just after Britain pumped $87 billion into stricken banks and offered hundreds of billions of dollars more in loans, but that measure had failed to halt another market freefall over fears that the crisis was driving the world into recession.

Panic selling set hit Asian stock exchanges and a drop of 9.38 per cent in Tokyo prompted Japanese Prime Minister Taro Aso to voice “huge fears” for the future of the world’s second biggest economy. Hong Kong fell 8.2 per cent and Sydney 5.0 per cent.

While the initial impact of the central banks’ move was to breathe some life back into the main European markets, the relief was only temporary.

London lost 4.5 per cent in mid-afternoon trade, with the FTSE 100 index of top shares sinking to 4,397.86 points at 1315 GMT.

US stocks also opened sharply lower, with the Dow Jones Industrial Average plunging 1.93 per cent or 182.08 points at the open.

Unveiling a package which will see Britain’s eight main banks part-nationalised, Prime Minister Gordon Brown said “the global financial market has ceased to function” and needed “bold and far-reaching solutions”.

The government said it would use 50 billion pounds ($87 billion) to buy stakes in HSBC, Royal Bank of Scotland, Barclays, HBOS, Lloyds TSB, Standard Chartered, Abbey and Nationwide Building Society.

It would also make available 200 billion pounds in short-term loans and issue 250 billion pounds to guarantee loans between banks.

The government hopes the measures will overcome bank reluctance to lend to each other — the root of the financial crisis.

Brown also called for a “European-wide funding plan” to help ease the global financial crisis and said proposals had been made to other nations.

Some analysts, however, said the move would do little to stem the global turmoil.—AFP