Fears of global liquidity crisis grip markets

By Daniel Bases

NEW YORK (Reuters) - Global stock markets fell and high-yielding currencies lost value on Friday, even as central banks pumped extra cash into the financial system to help temper fears of a liquidity crisis gripping investors.

Worldwide, central banks have injected at least $326 billion (179 billion pounds) into their financial systems in the past 48 hours in an effort to prevent a global liquidity crunch that has its roots in the riskiest end of the U.S. mortgage market.

In its biggest single day of temporary open market operations in nearly six years, the U.S. Federal Reserve added $38 billion in reserves in three moves, the first coming before U.S. stock markets began trading.

U.S. stocks opened sharply lower, following the pattern of steep losses in European and Asian stock indexes.

The European Central Bank added 61.05 billion euros (41 billion pounds) on Friday, less than its record-setting sum of 94.841 billion on Thursday. Asian authorities also added cash to their financial systems on Thursday and Friday.

What started as trouble with risky U.S. residential mortgages is buffeting world financial markets as the fallout hits banks globally, squeezes once ample liquidity, and threatens to damage world economic growth.

By 3:18 p.m. (8:18 p.m. British time), the Dow Jones industrial average was down 81.62 points, or 0.62 percent, at 13,189.06 -- well off its session low at 13,057.86. The Standard & Poor's 500 index was down 5.63 points, or 0.39 percent, at 1,447.46, off its session low at 1,429.74. The Nasdaq composite index was down 20.62 points, or 0.81 percent, at 2,535.87. Earlier in the day, the Nasdaq hit a session low at 2,503.16.

"To some degree, you've got people saying things are still pretty good. We're not going into a recession," said Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, California.