WASHINGTON, Oct 7: The US Federal Reserve opened up its coffers on Tuesday to companies hit by the credit crunch with a new programme that will buy up commercial paper, short-term debt critical for many corporate operations.

The latest effort in an all-out war against the credit crunch creates a new “liquidity backstop” for corporate finance and was established after the US Treasury determined it was “necessary to prevent substantial disruptions to the financial markets and the economy,” the central bank said.

The Fed gave no estimate of how much money would be devoted to the programme but said the US Treasury would “make a special deposit” at the New York Fed to get the programme rolling.

The effort is aimed at getting banks and other portfolio managers to buy and sell commercial paper, short-term securities issued by companies and banks for payrolls and other day-to-day expenses.

John Ryding, economist at RDQ Economics, said most of the funds for the programme are likely to go to banks and financial companies that have been trying to roll over debts linked to troubled real estate investments.

“This is basically unsecured lending to the banks,” Ryding said.

STOCKS: US and European stock markets lost steam in volatile trading on Tuesday, giving up early gains on persistent anxiety over the health of the banking sector and despite fresh central bank support.

Wall Street opened with solid gains, bolstering spirits and prices in Europe after the US Federal Reserve, the European Central Bank and European Union finance ministers all announced new measures to stanch a credit crisis and protect savers’ deposits. But the rebound lost momentum, with the Dow Jones Industrial Average down 0.07 per cent at mid-day at 9,948.09 points while the tech-heavy Nasdaq shed 1.08 per cent to 1,842.83 points.

European stock markets had a mixed performance on Tuesday, with gains in Paris and London and a drop Frankfurt, a day after suffering huge losses on evidence of European banking sector vulnerability.

The London FTSE 100 index of leading shares rose 0.35 per cent to close at 4,605.22 points while in Paris the CAC 40 gained 0.55 percent to 3,732.22 points.

But in Frankfurt, the DAX fell 1.12 per cent to 5,326,63 points.

Elsewhere in Europe, there were declines of 0.65 per cent on the Swiss Market Index, 1.0 per cent in Amsterdam and 2.29 per cent in Brussels. The Madrid market showed a gain of 1.27 percent at the close.

But in Paris, analyst Yves Marcais of Global Equities warned that while the Fed move “limits the contamination of the broader economy,” it will not solve “the problems of the banking sector.” —AFP