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AFP, NEW YORK - Central banks around the world on Thursday threw more than 300 billion dollars into the fight against the credit crisis as speculation grew over Wall Street legend Morgan Stanley and a top British bank was forced into a merger. The US Federal Reserve led a desperate operation to douse the financial firestorm, putting up an extra 180 billion dollars to relieve "elevated pressures" in global markets amid mounting political calls for decisive action to end the chaos.
But the panic drove heavy stocks falls in Asia, a slump in US Treasury bond yields and a leap in the gold price as investors sought a safe haven. The euro rose to a two week high of 1.45 against the dollar.
Central banks have now spent more than 600 billion dollars this week to ward off failure in the global financial system. In addition, the Fed rescued US insurance titan AIG with 85 billion dollars, having allowed Lehman Brothers bank to fail.
"The most important thing about this coordinated action is that there is access to US dollars even when the US markets are closed", Credit Suisse analyst Marcel Thieliant. This meant US financial groups could access dollars at any time through their foreign subsidiaries, he said.
The Fed was joined by the European Central Bank with the British, Japanese, Swiss and Canadian banks. They offered extra dollars to the banking system through arrangements to swap other currencies for dollars.
The Fed gave overall figures pointing to a total of 290 billion dollars. The ECB also made a direct emergency cash injection of 25 billion euros (36 million dollars).
European stocks staged a feeble rally on the central bank support and the takeover of Britain's biggest mortgage lender HBOS by British bank Lloyds TSB.
British authorities oversaw the takeover of Halifax Bank of Scotland (HBOS) by Lloyds TSB in an all-share deal worth 12.2-billion-pounds (15.4 billion euros, 21 billion dollars).
Britain's Financial Services Authority (FSA) said the takeover would "enhance stability within financial markets and improve confidence among customers and investors".
There was a 1.62 percent rise in London after a 10-percent fall over three days.
Stocks in Asia ended with heavy falls on reports that Morgan Stanley, one of the last two independent US merchant banks, was in merger talks. Morgan Stanley's shares slumped 24 percent on Wednesday.
The state-controlled Chinese group CITIC declined to comment on a report by CNBC television, quoting US and Chinese sources, that it was in talks with Morgan Stanley. The sovereign wealth fund, China Investment Corporation, already owns 9.9 percent of Morgan Stanley.
The New York Times said Morgan S
tanley was in "preliminary" talks with Wachovia Corporation of the United States.
US thrift Washington Mutual is also at the centre of market worries which have dragged down stocks.
British finance minister Alistair Darling said after central banks acted that governments must now act "decisively and quickly" to end the crisis.
"The key thing...is to maintain stability of the banking system," he told BBC radio.
"We are going through a truly exceptional difficult time in relation to banks and other financial institutions," he added.
Russian President Dmitry Medvedev ordered his government to support the Russian financial system, saying it was the "most important priority", after the stock market in Moscow was closed for a third day in a row.
"We have enough reserves, we have a strong economy," Medvedev said. "The market will get all necessary support."
But at Heartland Advisors, portfolio manager Michael Petroff, said: "The market is trading under the assumption that every financial institution is going under...it's now emotional."
Aaron Smith at Economy.com said: "Investor concern is also growing about the Fed's ability to support markets in the future as the central bank's own balance sheet is reduced."
On Wednesday, the Dow Jones Industrial Average slid 4.06 percent in the second massive loss in three sessions.
Markets fear that the US central bank's rescue of American International Group (AIG), soon after taking over US mortgage giants Fannie Mae and Freddie Mac, might not be enough to end the credit crunch.
"The move represents the largest lurch toward socialism that this country has ever seen," said Peter Schiff, president of Euro Pacific Capital.
The White House said Wednesday that the United States had "the strength" to overcome the crisis.
The US Treasury has also announced it would sell 40 billion dollars in 35-day bonds to help the Federal Reserve as it battles to shore up the economy.
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