LONDON - European governments struggled Wednesday to contain the deepening world financial crisis, with Britain stepping in to help its hard-pressed banks and Russia shutting down its biggest stock market for two days. But some relief emerged when the European Central Bank joined the U.S. Federal Reserve, the Bank of England and others in slashing interest rates.

After the central banks stepped in and cut their official rates by half a point, markets, recovered somewhat from earlier lows. The British FTSE was down 0.85 percent, the Frankfurt DAX was down 2.34 percent and the Paris CAC40 was off 2.12 percent.

Britain became the latest country to look to bail out its battered banks and Russia's authorities suspended share trading on the MICEX exchange until Friday as stocks dove early in the day.

The British Treasury said it would be investing up to 50 billion pounds ($87.5 billion) in exchange for stakes in the country's largest banks and building societies, as well as guaranteeing some 250 billion pounds (US437.5 billion) worth of loans.

The part-nationalisation of some of the country's leading banks are supposed to put them on a "sounder footing", according to Prime Minister Gordon Brown, after Tuesday's precipitous collapse in a number of banking stocks, most notably Royal Bank of Scotland PLC and HBOS PLC threatened the viability of the entire financial system.

Brown and Treasury chief Alistair Darling hope that the package of measures announced will eventually give banks more confidence to start lending to each other.

"This is not a time for conventional thinking or outdated dogma but for the fresh and innovative intervention that gets to the heart of the problem," Prime Minister Gordon Brown told a news conference.

Darling said the government was "absolutely not" seeking to take control of the banks.

"We are not talking about running the banks. The banks will are going to be run as commercial operations, albeit with government help in restructuring," he said at the news conference with Brown.

Earler, on the morning television show GMTV, he said: "The big problem is that if we don't do this, we run the risk that banks will stop lending to each other and if they don't lend to each other, then they won't lend to us," Darling told morning breakfast show GMTV.

"That is happening here, it is happening in America, it is happening in Europe, it is happening all over the world. I want to give a jolt to the system to move it on."

The Treasury also said the Bank of England would be expanding its Special Liquidity Scheme to facilitate short-term borrowing and help to free up credit markets. Under the expansion, it will make at least 200 billion pounds (US$350 billion) worth of three month loans available to the country's banks.

The British bank plan did little to provide an immediate confidence boost to British stocks, which continue to be battered by the complete meltdown in financial markets, but the interest rate cut helped lift them ater.

Tiny Iceland, whose banks are highly leveraged, continued to struggle, getting a bailout loan from Sweden; the country has nationalized two of its major banks, including Landsbanki, the nation's second largest. Britain said it would guarantee deposits in British affiliates of Icelandic banks. Thousands of people had accounts through Landsbanki's Internet operation, Icesave, which has suspended withrawals.

Europe's stock exchanges opened sharply lower in the wake of Japan's worst performance since the stock market crash in 1987. The CAC-40 index in Paris actually suspended updates for a short because there were too many sell orders to keep up with.

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 Wednesday.

Russia's oil-fueled economy has seen its stocks hurtle lower on the back of falling oil prices and concerns about the depth of the financial and economic woes in Europe and the U.S. That combination contributed to the worst-ever day of trading for Russian shares on Monday.

With coordinated government action proving to be difficult, governments around the world are beginning to look around for someone to blame.

France's finance minister Christine Lagarde appeared to put responsibility for the crisis on U.S. Treasury Secretary Hank Paulson for allowing the investment bank Lehman Brothers Holdings Inc. to collapse, while Britain's Brown said Britain will take legal action against Icelandic authorities to recover money held by British savers in U.K. branches of troubled Icelandic banks.

Lagarde told French radio that allowing the failure of a major bank like Lehman was like letting a "domino" fall, which ran the risk of the entire interlocking financial system collapsing.

  Add comment

Name:
E-Mail:
Comment:
Enter code: