European central banks inject cash

The central banks of Britain and Switzerland added extra funds to ease pressure on high interbank lending rates today, while the European Central Bank said it was ready to step in with extra cash as needed.

The moves from Europe's three largest central banks helped boost European stocks, following a steady rise in money market lending rates as the end of the quarter nears.

The Bank of England lent £13.62 billion sterling ($27.33 billion) at its regular one-week money market operation, up from £10.93 billion the previous week. Banks bid for almost three times that much, demonstrating the demand for ready cash.

The Swiss National Bank offered three-month funds at 2.20 per cent in a move seen as an attempt to ease money market tensions due to fear of future losses in the banking sector.

German banking giant Deutsche Bank has issued a veiled profit warning due to the credit crisis, and Switzerland's UBS and Credit Suisse are expected to announce further losses next week.

Nonetheless, money market rates continued to climb.

London interbank rates rose with Libor three-month sterling funds edging above 6 per cent, their highest since late December, while overnight dollar Libor rates jumped to 3.07750 per cent, a 10-day high.

Traders and analysts said extra liquidity would be welcomed given fresh tensions on markets which have pushed short-term interbank lending rates up to their highest level this year.

ECB Governing Council member Guy Quaden said money market tensions were due to lack of confidence among financial institutions. He called for full disclosure from banks.