Fed injects billions to rescue money markets

The world's biggest central banks were today back on a Lehman Brothers-style crisis footing as international money markets threatened to close.

A programme to ship billions of US dollars to Europe to ease the flow of money between banks nervous about sovereign debt defaults in Greece and beyond was re-launched by Federal Reserve chairman Ben Bernanke.

The European Central Bank said it would buy government and corporate bonds as part of a historic bid to stave off a sovereign debt crisis that threatens to destroy the euro.

However, the rate at which banks lend to each other remained at a nine-month high after it last week recorded its biggest rise since October 2008. Three-month dollar Libor slipped only marginally from 0.428% to 0.421%.

Marc Ostwald, a fixed income strategist at Monument Securities, said: "The package has only partly given the all-clear to the money markets. There's still a little bit of wariness over counterparty risk. The financial sector is still in a pretty dicey situation."

The Fed plan sees the Bank of England, the European Central Bank, the Swiss National Bank, the Bank of Japan and the Bank of Canada lend dollars to banks which have stopped lending to each other.

The last time the Fed took such action was in September 2008 after the collapse of Lehman Brothers at the height of the financial crisis. Similar moves were made after the 9/11 terrorist attacks on the US.

A statement from the Bank of England said: "These facilities are designed to help improve liquidity conditions in the US dollar funding markets and to prevent the spread of strains to other markets and financial centres.

"Central banks will continue to work together closely as needed to tackle pressures in funding markets."

"At the moment, it feels worse than 2008," said Geraud Charpin, a fund manager at BlueBay Asset Management in London. "There is no buyer of risk in the market."