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Heavy demand for Fed credit issue Heavy demand for Fed credit issue
(10 minutes later)
Banks have queued up to tap the $20bn (£9.98bn) in credit being issued by the US Federal Reserve, a move aimed at easing troubled global money markets.Banks have queued up to tap the $20bn (£9.98bn) in credit being issued by the US Federal Reserve, a move aimed at easing troubled global money markets.
More than 90 firms put in bids for credit worth a total of $61bn at an interest rate of 4.65%, the Fed said.More than 90 firms put in bids for credit worth a total of $61bn at an interest rate of 4.65%, the Fed said.
Analysts said this demand reflected the severity of the continuing credit squeeze, which has forced up the rates at which banks lend to each other.Analysts said this demand reflected the severity of the continuing credit squeeze, which has forced up the rates at which banks lend to each other.
The Fed's move is the latest by central banks to address the liquidity crisis.The Fed's move is the latest by central banks to address the liquidity crisis.
'Market need''Market need'
The European Central Bank pumped $500bn into the money markets on Tuesday while the Bank of England auctioned off £10bn worth of credit.The European Central Bank pumped $500bn into the money markets on Tuesday while the Bank of England auctioned off £10bn worth of credit.
The stigma of borrowing from the central banks has gone by the wayside Chris Rupkey, Bank of Tokyo
By doing so, policymakers want to force down the cost of interbank lending, which has soared as banks worried about the scale of losses from the US sub-prime crisis horde cash.By doing so, policymakers want to force down the cost of interbank lending, which has soared as banks worried about the scale of losses from the US sub-prime crisis horde cash.
Analysts said the fact that the Fed's credit was being lent at 4.65%, at the higher end of market expectations, signalled the extent of the problems banks were facing.Analysts said the fact that the Fed's credit was being lent at 4.65%, at the higher end of market expectations, signalled the extent of the problems banks were facing.
"If the auction is fully subscribed at a level close to the primary credit rate of 4.75%, it would be a sign that significant needs remain and that..the operation cannot come soon enough from the market's perspective," economists Wrightson ICAP said. "The stigma of borrowing from the central banks has gone by the wayside," said Chris Rupkey, senior financial economist at the Bank of Tokyo in New York.
"It looks like it was an aggressive auction."
Just before the Fed gave details of the auction's outcome, Morgan Stanley revealed that $9.4bn of write-downs on sub-prime related assets had forced it into a huge quarterly loss.Just before the Fed gave details of the auction's outcome, Morgan Stanley revealed that $9.4bn of write-downs on sub-prime related assets had forced it into a huge quarterly loss.
It is just one of several top US banks, including Merrill Lynch and Citigroup, that have incurred huge liabilities from the collapse of the sub-prime mortgage market.
Rate reaction
Many analysts believe the co-ordinated central bank action has had the desired effect, with three-month sterling and euro Libor rates falling sharply in recent days.
But some have warned that the credit squeeze, and its detrimental impact on the global economy, is far from over.
"It is the caution on lending that is problematic," said Alan Ruskin, chief international strategist at RBS Greenwich.
"In a sense liquidity does not change that."