Banks and markets seek political lead in crisis

By Keith Weir and Simon Rabinovitch

LONDON/BEIJING (Reuters) - Investors looked to central banks and politicians on Tuesday to show they could contain an escalating financial crisis after Australia responded by cutting interest rates sharply.

Equities across much of Asia and commodity prices rallied after the Australian central bank slashed its benchmark cash rate by 100 basis points, the biggest single cut since 1992.

European stock markets, which suffered record losses on Monday, were expected to make up some lost ground. However, Japan's Nikkei share average finished at a five-year low as the panic that swept through Europe and the United States reached Tokyo.

U.S. officials have called for a "forceful and coordinated" global reaction to kickstart anaemic bank lending but such a unified approach remains elusive.

European Union finance ministers meet in Luxembourg on Tuesday to try to flesh out promises to counter market mayhem and ensure no savers lose any money. The EU has been criticised for its fragmented response to the crisis and the way individual countries have broken ranks with deposit guarantees.

The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialised countries closer to recession. Conditions remained poor for interbank lending.

Economists said the Australian rate cut might be followed in Europe and the United States.

"If the need is there to get rates down towards something that's more neutral, then why dilly dally? Get it done in one go," said Brian Redican, an economist at Macquarie. "It's a flexibility other central banks should take careful note of."