The United States Federal Reserve pumped 38 billion dollars into the banking system Friday, marking its biggest operation since the week of the 9/11 terror attacks, as it vied to shore up the US financial system.
The US central bank acted after injecting 24 billion dollars Thursday into the market, amid sharp falls on global stock markets which were triggered by fears over the slump of the US housing market and a related credit crunch. "The Federal Reserve is providing liquidity to facilitate the orderly functioning of financial markets," the US central bank said. The Fed, which has pumped a combined 62 billion dollars into the market in two days, said it stood ready to release more money if necessary as investors ditched mortgage securities and stocks tied to the troubled housing sector. Concerns about the US housing and mortgage markets have swept the globe, sparking hefty declines on Asian and European stock markets and injections from other central banks. The Fed injected an initial tranche of 19 billion dollars, followed rapidly by a second large infusion of 16 billion dollars, into the financial system in a bid to calm market turmoil. It then pumped a third tranche of three billion dollars Friday afternoon. It said it would also "provide reserves as necessary through open market operations" to keep its short-term federal funds interest rate close to its 5.25 percent target and to boost liquidity. Other central banks also flexed their muscles Friday to soothe overseas markets. The European Central Bank pumped more money into the Euro-zone banking market, taking its cash injections to 155.85 billion euros in just two days. Japan's central bank had earlier pumped one trillion yen 8.5 billion, boost liquidity and the Bank of Canada over three billion in two days. US stock markets remained volatile for the second day running in the wake of the Fed's interventions. New York's main Dow Jones share index ended 31.14 points, 0.2%, lower at 13,239.59. The S&P made up some losses to close little changed at 1,453.64 and the Nasdaq composite index fell 11.60, or 0.45%, to 2,544.89. In Latinamerica Brazil's Bovespa lost 1.48% on Friday accumulating a 5.74% drop in the week; Argentina's Merval ended 1.65% below and 4.43% down in the week; Chile's IPSA was 1.16% down and Mexico's IPC, lost 1.55%. In Europe London's FTSE 100 index had its worst day in more than four years, down 3.7%. In France, the main Paris-based Cac 40 index fell 3.1%, and Germany's Dax 30 index lost 1.4%. Earlier, markets in Asia had also closed significantly lower. In London UK Prime Minister Gordon Brown looked to reassure investors. "There will always be issues with the markets, and of course we cannot insulate ourselves from events that are happening in all parts of the world," he said. "I think the important message to be sent is we have done everything in our power to maintain the stability of the British economy." At close of trade in Japan, the Nikkei share index was down 2.4%, at 16,764.1. In Hong Kong, the Hang Seng index ended the day down 2.88% at 21,799.96, after trade was suspended early because of a tropical cyclone warning. South Korea's central bank said it would also intervene if necessary in financial markets to counter the international turmoil. The Reserve Bank of Australia on Friday added more than twice the usual amount of money into the banking system, injecting 4.19 billion US dollars in its regular morning money market operation. Central banks in Malaysia, Indonesia and the Philippines intervened to sell dollars to support their currencies. Meantime the International Monetary Fund, IMF described the current turbulences in financial markets as "manageable". "We continue to believe that the consequences for the overall system, with a reassessment of credit risks which is about to take place, are manageable", said Masood Ahmed, IMF spokesperson adding "the situation is still evolving".