Europe’s debt crisis prompts central banks to provide dollar liquidity

European and US stocks surge on news that world banks will flood markets with dollars in coming months Fears of a deepening of Europe’s debt crisis have prompted the world’s leading central banks to pump US dollars into the financial system, in a co-ordinated action designed to boost market confidence. The Bank of England joined the US Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of Japan on Thursday to announce that they would flood money markets with dollars over the coming months. The move, on the third anniversary of the collapse of the US investment bank Lehman Brothers, sent shares soaring in banks heavily exposed to debt default by Greece and the other struggling members of the 17-nation eurozone. Under the terms of the deal, banks will be able to bid for unlimited amounts of US dollars at fixed interest rates in three separate auctions. The first of these will be on 12 October. Nick Parsons, head of strategy at National Australia Bank, said the decision to provide unlimited to liquidity well into 2012 was a big show of support to the global banking system. But he added: “If Greece were to default, an announcement that there would be unlimited liquidity available from central banks is one of the things you would want to have in place beforehand.” In London, the FTSE 100 index jumped 125 points to 5352, up 2.5%. On Wall Street, the Dow Jones index gained 1.2% to 11385. French bank stocks jumped, with BNP Paribas gaining 12%. The euro also jumped more than one cent against the dollar to $1.3886. European debt crisis European banks European Central Bank Europe Bank of England Lehman Brothers FTSE Dow Jones Dollar Stock markets Greece Larry Elliott guardian.co.uk

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