Asia cen banks try to calm markets with cash, words
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By Chikako Mogi and Wayne ColeTOKYO/SYDNEY (Reuters) - Japan, Australia and India plied money markets with cash on Tuesday as central banks across Asia-Pacific moved to prevent the upheaval on Wall Street from clogging the pipes of the global financial system.The Bank of Japan gave the banking system it biggest cash injection in almost six months as the prime minister met his top financial policy makers to discuss the fallout from the collapse of Lehman Brothers , the latest casualty of the credit crisis.Japanese markets were closed on Monday when the world woke up to the news that Lehman had filed for bankruptcy, crisis-hit Merrill Lynch has been taken over by Bank of America and insurer American International Group was having trouble raising cash.The rates at which banks lend to each other jumped in South Korea and the financial hub of Hong Kong, mirroring jitters that cramped U.S. money markets the previous day as stocks tumbled and currencies whipsawed.On Monday stunned investors had hoarded cash, drying up lending between U.S. banks and triggering a $70 billion cash injection from the Federal Reserve.Authorities across Asia said they too were ready to act."The Bank of Japan will carefully monitor the recent situation surrounding U.S. financial institutions and its impact," BOJ Governor Masaaki Shirakawa said in a statement.The BOJ, which begins a two-day rate review on Tuesday, pumped 1.5 trillion yen ($14.2 billion) into the money market, the biggest injection since March 31.The overnight call rate eased slightly to 0.52 percent from around 0.55-0.56 percent before the operation."I expect the BOJ to keep a generous funding stance for a while until market jitters subside," said Shinsuke Kanabu, joint general manager at money broker Central Tanshi.FED CUTThe Bank of Japan is expected to leave its benchmark interest rates unchanged on Wednesday, with its banking system largely unscathed by the global credit squeeze triggered by U.S. mortgage defaults.The Federal Reserve reviews policy on Tuesday and markets are pricing in an 88 percent chance of a 25 basis point cut to 1.75 percent.But economists expect the central bank to express its readiness to cut rates swiftly if needed to protect the economy, but stop short of lowering borrowing costs just yet.U.S. market appeared poised for another selloff on Tuesday after ratings agencies downgraded AIG's debt, complicating its battle for survival.Shockwaves from the Wall Street crisis prompted the Reserve Bank of Australia to pump nearly $1.8 billion ($1.5 billion) into the banking system on Monday, nearly three times as much as market estimated requirement, in its second injection in two days.The Reserve Bank of India added almost 60 billion rupees ($1.32 billion) through a refinance operation, its biggest injection in at least a month.Hong Kong, South Korea and Taiwan offered verbal reassurances."We will take appropriate steps if we see fluctuations in the foreign exchange market," South Korean Vice Finance Minister Kim Dong-soo said.RATES JUMPSeoul authorities have spent more than $30 billion this year to support the won, which has taken beating along with most emerging market currencies as investors shun risky assets.The presidential Blue House has called a meeting ministers to discuss the impact of the latest turmoil on the South Korean economy, a government source said, speaking on the customary condition of anonymity.South Korea's three-month certificate of deposit rates rose to an eight-month high of 5.79 percent on Tuesday. In Hong Kong, the overnight interbank offered rate jumped to 1.55357 percent from 1.44643 percent last week. Both markets were closed on Monday.The Hong Kong Monetary Authority said it was ready to inject cash into the banking system and Taiwan said banks could draw on funds at the central bank at any time.(Additional reporting by Yoko Nishikawa in Tokyo, Kevin Yao in Singapore Umesh Desai and Susan Fenton in Hong Kong and Lee Shin-Hyung in Seoul, Writing by Jan Dahinten; Editing by Tomasz Janowski)
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