Wary central banks make fresh cash injections as markets rally

---

FRANKFURT, Aug 14 (AFP): Central banks around the world pumped out tens of billions more dollars yesterday to help commercial banks hit by the US home loan sector crisis, as shares bounced back from a turbulent week.
The European Central Bank (ECB) injected another 47.66 billion euros (65.06 billion dollars) after putting a record 155.85 billion euros into the market last Thursday and Friday.
The bank, seeking to assure rattled investors, said conditions were gradually returning to normal, as world stock markets rallied after taking a battering last week from the US subprime mortgage sector crisis.
Later, the US Federal Reserve injected two billion dollars after releasing 62 billion dollars late last week in the biggest influx since the aftermath of the September 11, 2001 attacks. The Bank of Japan was also active.
A research note from London-based Capital Economics said the central banks' rare coordinated moves were effective, reassuring investors that they would act to head off a credit crisis, but did not guarantee smooth sailing ahead.
"Nonetheless, even though the worst fears had always looked overdone, it is too soon to sound the all clear," it said.
"It seems unlikely that we have heard the last of the bad news on the fall-out from the subprime crisis on individual banks and hedge funds."
The cash injections, which enable commercial banks to borrow from the central bank to meet their liquidity needs, are aimed at forestalling a credit crunch linked to problems in the US subprime mortgage market.
Subprime loans are mortgages offered at higher than average rates to Americans who have a poor credit rating and might otherwise be denied credit.
The current crisis stems from concerns that banks exposed to losses in the US subprime market might have insufficient cash to continue lending normally, drying up funds needed for investments and thereby damaging the economy.
Analyst Mitul Kotecha with Calyon Financial said skittishness on the markets could prompt central banks to lower interest rates.
"Anytime there is any improvement in sentiment, it only takes more bad news from a hedge fund or bank to reverse it again," he warned.
"The longer it continues, the greater the chance of rate cuts, but even that may matter little if this develops into a full-blown credit crunch."
The chief economist with Frankfurt's DekaBank, Ulrich Kater, warned that the crisis in the US real estate market could prove to be a drain on the economy as a whole.
"Many banks will not hand out loans as carelessly," he told German rolling news channel N24, adding that such a stance could slow investments in Europe and the United States.
He warned the ECB against a planned interest rate hike in September.
Stock markets worldwide clawed their way back Monday after steep losses late last week.
US shares opened higher Monday, European shares closed with large gains and most Asian stock markets were positive.
In further developments Monday linked to the stock market turmoil, Goldman Sachs, one of Wall Street's most prestigious investment banks, teamed up with a group of investors to lead a three-billion-dollar bailout of a hedge fund it manages.
Japan's central bank said earlier it would pump another 600 billion yen (5.0 billion dollars) into the money market, on top of a one-trillion-yen injection Friday.
The Frankfurt-based ECB, which sets monetary policy in France, Germany, Italy and the 10 other nations that use the euro, said Monday's move should shore up investor confidence.
"With this fine-tuning operation, the ECB is further supporting th normalisation of conditions in the money market," it said.