LONDON, Dec 13: European stock markets fell heavily on Thursday, even after Wall Street had ended higher as major central banks sought to soothe a global credit squeeze. The decline in global equity markets today underlines the fact that global central bank action cannot rid the market of the current climate of fear and uncertainty that is the root cause of the reluctance of financial institutions to lend to each other, said Derek Halpenny at The Bank of Tokyo-Mitsubishi.

In a move analysts described as the most concerted effort since the September 11, 2001 terror attacks, the Fed and four other central banks said they would make tens of billions of dollars available to cash-starved international banks.

While the Fed plan had some positive impact on investor sentiment, it does not seem to be able to solve the fundamental problems of the financial system, said Soichiro Monji, chief strategist at Daiwa SB Investments.

The Paris CAC 40 was down 1.46 per cent in early European trade, London’s FTSE 100 shed 0.97 per cent and in Frankfurt the DAX 30 gave up 0.54 per cent.

The massive rescue effort by the five central banks to inject fresh money into the global banking system came amid concerns about a widening credit crunch in which commercial banks are curbing lending to peers.

The banks’ efforts creates a temporary short-term auction system to allow commercial banks another avenue to obtain funding. The first auction of $20 billion will be held Monday by the Fed with an additional $20 billion made available on December 20.

The US Federal Reserve, which is working alongside the central banks of the eurozone, Britain, Switzerland and Canada, said the process offered a new way to inject money into the banking system following a series of steps since the credit crisis erupted in August.

The central banks are trying to reinject confidence back into the market and they’re on the right track but how big is the train wreck? I don’t think anybody really knows, Reynolds & Co director Marcus Meuller said.—AFP