UK authorities act to shore up financial system

By Steve Slater and Christina Fincher

LONDON (Reuters) - British authorities announced three separate initiatives on Friday to get the cogs of the financial system turning again.

None of them was as sweeping as the $700 billion bailout proposed by the United States or the blanket guarantees offered in Ireland, but they underlined Britain's acknowledgement of the gravity of the crisis and the need for action.

Britain's Financial Services Authority (FSA) raised the compensation limit for savings to 50,000 pounds ($88,390) per customer claim from 35,000 pounds, after signs bank customers were withdrawing cash to put into perceived safe havens.

The higher limit will take effect from next week and could be further increased as regulators battle to restore confidence in the banking sector.

The Bank of England announced it would extend the range of collateral it accepts at its weekly three-month cash auctions to include some highly-rated corporate and consumer loans -- just the sort of stuff that has been clogging up bank balance sheets.

"In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity," said BoE Governor Mervyn King.

Lastly, Britain's Debt Management Office announced a special facility to promote the orderly functioning of the gilts market. In recent days, there has been a rush into the safety of short-dated gilts leading to strains in the market.

"They're pulling out the stops to try and solve the problems in the interbank markets and it's another step in that direction," said Paul Dales at Capital Economics. "They've got quite a lot of ammunition in their hands and they are slowly releasing it as the events warrant."