World central banks pump cash into markets

Stock markets jumped this afternoon after the Federal Reserve, European Central Bank, the Bank of England and other central banks announced a pumping of cash into the markets.

The auction of funds – following similar moves in December and January – picked up stock levels for banks in particular, but after the initial enthusiasm the FTSE fell back down to below its morning high.

The FTSE finished the day up 1.05 per cent.

"The big gainers on the day from an investors' point of view were the banks, with the likes of Barclays, HBOS and RBS all up by more than four per cent on the day so far," said Anthony Grech, market analyst at spread betting firm IG Index.

"In the short term at least traders maybe took this as a sign the central banks would continue to try and ease the pressures caused by the credit crunch, which should go some way to help the banking business.

"Even though today’s news was always virtually guaranteed to provide at least a short-term boost to financial markets, the worry for some traders will be what this says about the state of things at the moment. If central banks feel the need to constantly tweak the financial system, do they fear much worse risks ahead that we have yet to discover?"

In the US financial shares also led the rises after the Fed announced up to $200 billion (£102 billion) would be made available to the markets.

The Bank of England is to offer £10 billion in the auction.

Richard Farr, director of the Association of Mortgage Intermediaries (AMI), said: "Although not a long-term solution to the liquidity crisis we agree with the Bank's view that the 'continuing elevated pressures in short-term funding markets' are very real, are causing significant pain to the lending industry and are having a subsequent knock on effect in the housing market.

"We would encourage the bank to consider increasing the tranche that is to be released in April as we expect this first tranche to be oversubscribed.

"We would also like to see the Bank support the UK in providing much needed liquidity as their counter parts have done significantly in North America and Europe."