Trader Bradley Silverman works on the floor of the New York Stock Exchange. The Federal Reserve this morning ordered an emergency cut of a half a percentage point to 1.5 percent to cope with escalating worries about credit markets and the financial sector. (AP Photo/Richard Drew)

By Pan Pylas

LONDON — European markets fell, then recouped most of their losses Wednesday after six central banks jolted markets by cutting interest rates together in an attempt to shore up confidence in the world’s crisis-stricken financial system.

The move by banks including the U.S. Federal Reserve, Bank of England and European Central Bank helped stock markets around the world rally off lows earlier on a day that saw Japan’s Nikkei showing its biggest drop since the October, 1987 stock market crash.

It was the first coordinated interest rate reduction since one made in the wake of the September 2001 terrorist attacks in the United States.

“It was high time for an emergency rate cuts across the board,” said Andrew Smith, chief economist at KPMG.

“If frozen credit markets, a banking crisis, collapsing equity prices and evidence that the economy has hit a wall did not constitute an overwhelming case for lower interest rates, it’s difficult to know what would have,” he added.

Markets appear to have breathed a sigh of relief to the joint action.

The FTSE 100 index of leading UK shares moved into positive territory after the move and was 15.88 points, or 0.34 percent, higher at 4,621.10. France’s DAX was only 4.42 points, or 0.1 percent lower at 3,727.80, having slumped by more than 8 percent earlier in the session, while Germany’s DAX was 52.92 points, or 1.0 percent weaker at 5,273.71.

Futures indicated the Dow Jones index of leading U.S. shares would open nearly 200 points higher.

All cut by a half-percentage point — a bold stroke intended to send a strong message and restore confidence, as well as keep the credit crisis from further damaging the wider economy as companies struggle to borrow for everyday and long-term needs. Fearful banks are refusing to lend to one another and markets in commercial paper, or short-term unsecured company debt, have been frozen.

The Fed reduced its key rate from 2 percent to 1.5 percent, while the Bank of England cut its base lending rate by half a point to 4.5 percent, and the ECB, which last week decided to keep borrowing costs on hold, cut to 3.75 percent. Other central banks also taking part include the banks of Canada, Sweden, and Switzerland. China also cut but did not join in the group statement that accompanied the decision.

“The key now is for the markets to respond to this intervention with reason and a measure of realistic optimism,” said Stephen Gifford, chief economist at Grant Thornton.

The cuts today came as markets in Asia and Europe had taken another battering and Britain stepped in to support banks, while Russia closed its main stock market for two days. The selling tide was so huge that the Paris stock exchange briefly suspended calculating the benchmark CAC-40 index amid a massive influx of sell orders that caused it to plummet nearly 8.2 percent at one stage.

And Moscow’s MICEX stock exchange, where most of Russia’s trading takes place, announced it is shutting until Friday after opening with steep losses. The MICEX index dropped more than 14 percent in the first half-hour of trading today.

The RTS exchange, whose index is widely considered the benchmark of Russia’s markets, fell more than 11 percent in the first 30 minutes and suspended trading until further notice.

Overnight, anxious investors sent Asian markets sharply lower with Tokyo in free-fall, with the benchmark Nikkei 225 stock average plunging 9.4 percent — its biggest drop in 21 years — to 9,203.32, a five-year low.

“No one knows the bottom of the ongoing financial crisis, and investors were really spooked by growing uncertainty over the global credit crisis,” said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC Co. Ltd.

Hong Kong’s blue chip Hang Seng index shed 8.2 percent. Markets in South Korea and Taiwan boh fell 5.8 percent, and Indonesia’s stock market was shut down for the day after it fell more than 10 percent.

Australia’s benchmark S&P/ASX200 closed down 5 percent, wiping out gains Tuesday after the country’s central bank cut its key interest rate by a bigger-than-expected 1 percentage point.

See tomorrow’s Chattanooga Times Free Press for complete coverage.

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