The world's central banks yesterday unleashed a co-ordinated assault on the credit squeeze in global capital markets with a barrage of new measures to support market liquidity.

The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Swiss National Bank all announced steps to make cash more readily available to banks, while the Bank of Japan declared its support for their initiatives.

The announcements generated an initial euphoric reaction from investors, with shares surging globally. Strains in the interbank money market eased.

But interbank borrowing spreads remained far above normal levels, and by midday trading in New York stocks had given back some of their gains.

The Fed said it was creating a new liquidity facility that would auction loans to banks, accepting a wide range of collateral, including housing-related securities, in return.

The US Federal Reserve said it would hold two auctions of $20 billion each in one-month loans this month.

The ECB and the Swiss National Bank said they had entered into swap arrangements with the Fed to provide up to $24 billion for distribution to banks in Europe in need of dollar funds.

The two initiatives effectively create a new onshore and a new offshore dollar liquidity facility.

One unnamed analyst pointed to Bank of Ireland, HBOS and Portugal's BCP as probable beneficiaries of the move. Banks with high loan-to-deposit ratios, which rely heavily on wholesale funding, are likely to benefit from the effort because they have been placed most at risk by the seizing up in interbank lending, he said.

In general, analysts hailed the joint announcements as evidence that the world's top central bankers are working together to address problems in globally integrated capital markets. - ( Financial Times service/Bloomberg)