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Banks act to save markets
September 12, 2001: 6:51 a.m. ET

ECB lends $63 billion as Central Banks act to stave off panic
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LONDON (CNN) - Central banks around the world have acted swiftly to keep financial markets working following Tuesday's terror attacks on the United States.

Reacting to fears of a shortage of funds in markets, the European Central Bank swiftly supplied cash to the markets to help restore confidence and stave off the risk of a global recession in the wake of the attacks on New York's World Trade Center and the Pentagon.

The attacks struck the heart of New York's financial district and dealers said the incidents would certainly weaken the U.S. economy, and by extension the global economy, which central banks could counter with rate cuts.

The ECB said it will instantly lend $63 billion (graphic70 billion) to the markets and the Bank of Japan said it supply almost $17 billion.

ECB seeks to calm nerves

ECB President Wim Duisenberg told the European Parliament: "The ECB has decided to do a quick tender at a fixed rate of 4.25 percent in order to calm down the tensions in the market.

"This demonstrates that we are alert and that we are answering very short term panicky reactions in what I believe is an adequate way."

He added it was "too early to judge" what the effects of the attacks would be on world economies, and said he believed an immediate cut in key interest rates would have "inspired panic rather than stability and calmness".

The Bank of England, the Swiss National Bank and the central bank of Turkey vowed to pump money into the markets where needed as Europe's bourses opened for business.

In Zurich the Swiss National Bank (SNB) added funds to the money market to tackle liquidity strains amid demand for francs, a traditional safe haven.

Earlier on Wednesday, the Bank of Japan acted to soothe fears of global economic paralysis and was quickly followed by central banks in Australia, South Korea, Singapore and Thailand.

U.S. Federal Reserve chairman Alan Greenspan, who spearheaded coordinated rate cuts by central banks after the 1987 stock market crash, was heading back to the U.S., according to the Bank for International Settlements in Basel, Switzerland, where he had been attending meetings over the weekend, Reuters reported.

Greenspan's plane had first been turned back on Tuesday as it traveled from Switzerland to the U.S. following the attacks.

"We expect the central banks are going to be very proactive in the next few days, both in providing liquidity as well as trying to dampen exchange rate volatility," Ron Leven, currency strategist at Lehman Brothers in Tokyo, told Reuters..

Foreign exchange dealers were already speculating that the Federal Reserve would announce an emergency U.S. rate cut, to be followed by much of the developed world.

"We may see emergency rate cuts across the globe as happened after the Wall Street crash in 1987," said Mansoor Mohi-uddin, an economist at UBS Warburg in Singapore, Reuters reported. graphic