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Britain pumps cash into banks, Hong Kong slashes rates

LONDON/HONG KONG - Britain announced plans to inject up to 50 billion pounds ($87.2 billion) in capital into its biggest retail banks on Wednesday and Hong Kong slashed interest rates to try to stem the global financial crisis.

In an effort to kickstart stalled money markets, the Bank of England would offer at least 200 billion pounds in further short-term liquidity.

Hong Kong followed Australia's lead in slicing a full point off interest rates as pressure grew for a coordinated, global monetary policy response to the biggest financial crisis since the Great Depression.

Shares in Tokyo plunged more than nine percent, the biggest decline since the 1987 stock market crash, on growing fears that the chaos in credit markets will foster a global economic recession.

Shares in Europe were also expected to tumble again.

The British decision follows days of crippling pressure on high street banks, some of which have lost nearly half their value on the stock market amid investor fears they could collapse.

"Extraordinary times call for bold and far-reaching solutions," British Prime Minister Gordon Brown will say at a news conference later on Wednesday, according to extracts released by Brown's press office.

Federal Reserve Chairman Ben Bernanke said on Tuesday the U.S. economy was being battered by a financial crisis of "historic dimension" and that the risk for inflation has eased with the falling prices for oil and other commodities.

His comments were seen as laying the groundwork for a deep cut in U.S. interest rates, possible before the Fed's end-of-month meeting. The Bank of England will deliver its latest interest rate decision on Thursday.

Around the globe, people are worried about safeguarding savings and keeping their jobs as some of the pillars of international finance give way.

The upheaval that began on Wall Street has effectively shut down interbank and other loan markets. Stemming from the collapse in the U.S. housing market and increase in bad loans, the crisis is the worst financial storm in almost 80 years.

Edge of the Abyss

Hong Kong unveiled a 100 basis point rate cut on Wednesday, a day after Australia made its steepest cut in 16 years.

Kirby Daley, senior strategist at Newedge Group in Hong Kong, said central banks should act in a concerted effort to back the interbank lending market, which has all-but frozen.

He called the Fed's move on Tuesday to buy commercial paper a good first step, but said the outlook remains grim.

"We're sitting between the abyss, which is the unthinkable, which is the breakdown of the financial system, or a deep and sustained recession, that will cause lower equity valuations to persist for the next 12 to 18 months," he said.

In the latest sign of gloom in the real economy, corporate bankruptcies in Japan jumped 34.5 percent during September from a year earlier, a research firm said.

"The primary thing the market is focused on is getting some sort of coordinated bailout plan done across Europe, possibly involving Japan and the U.S. Until we get that, the market's going to remain pretty nervy," said Andrew Quin, research strategy coordinator for Paterson Securities in Australia.

On Tuesday, the U.S. Federal Reserve stepped forward as a commercial lender of last resort, launching a new facility to buy short-term, highly rated corporate debt, while European Union finance ministers agreed to increase the minimum level of bank deposit insurance.

U.S. presidential candidates John McCain and Barack Obama sparred over taxes and the economy on Tuesday night in Nasville, Tennessee, during their second debate ahead of the Nov. 4 election.

"Americans are angry, they're upset and they're a little fearful," said McCain, a Republican senator from Arizona. "We don't have trust and confidence in our institutions."

Obama, a Democrat senator from Illinois, said the financial crisis was aided by deregulation of the financial industry supported by McCain and Republicans. He said middle-class workers, not just Wall Street, needed a rescue package that would include tax cuts.

"We are in the worst financial crisis since the Great Depression, and a lot of you I think are worried about your jobs, your pensions, your retirement accounts," Obama said.