Madrid's IBEX stock market fell amid continuing uncertainty in Europe[AFP]

Facing the worst financial crisis since the Great Depression, global central banks scrambled again on Tuesday to try to relieve a severe squeeze in money markets by more than doubling the amount of funding to $620 billion.

In Ireland, the government announced a blanket guarantee for savings held by its banks, covering up to $575bn in liabilities.

France, which had joined Belgium and Luxembourg in offering the lifeline to Dexia, which has run up huge losses in its US operations, said it would come to the aid of savers with new bank measures by the end of the week.

Shares in the bank, which specialises in lending to local governments, had fallen 30% on Monday before being suspended on Tuesday as the rescue plan was announced.

'Market meltdown'

Nicolas Sarkozy, the French president, began talks on the global crisis with finance executives on Tuesday and said he will meet this week with officials from Europe's other G8 member states, Germany, Britain and Italy to discuss the issue.

Dariusz Kowalczyk, the chief strategist at broker CFC Seymour, said: "Market meltdown is likely to continue unless an alternative [US] plan is passed, which may or may not happen this week."

Seeking to reassure investors, Christian Noyer, a European central bank governing council member, said: "There is no reason to be frightened and to give in to panic.

"I don't say there won't be things that will appear in the accounts that are published in the next weeks or months, but there is no drama in front of us."

The French government said the bailout was necessary to "guarantee continuity of funding for local authorities".

Trading suspended

Across Europe, stock markets remained volatile after a $700bn financial bailout plan in the United States was rejected by the House of Representatives.

The Frankfurt exchange was down 1.37 per cent in afternoon trading on Tuesday,  the Paris CAC 40 had shed 0.51 per cent, the Madrid IBEX had fallen 1.09 per cent and the Moscow RTS was down 0.92 per cent.

After initially plunging on opening, London's FTSE 100 recovered and oscillated between a loss of three per cent and a gain of 0.77 throughout the day.

In Russia, the Moscow stock market was briefly suspended seconds after trading began, the second time the measure has had to be taken in a month.

The Kremlin also announced it was placing a ban on the short-selling of shares.

Recommend this article...

Did you enjoy this article? Please bookmark it onto: