Central banks supply cash to keep money markets alive

By Jan Dahinten

SINGAPORE (Reuters) - The central banks of Japan and Australia hosed more cash at their banks to persuade them to resume lending to each other after a weekend of bank failures in Europe and urgent talks in the United States to seal a $700 billion bailout plan.

The Bank of Japan added 1.5 trillion yen (7.7 billion pounds) to its banking system, the 9th consecutive day of cash pumping into the money market, before adding another 400 billion yen on a spot basis, while the Reserve Bank of Australia added A$2.7 billion ($2.2 billion) to keep lending among banks going.

As U.S. lawmakers geared up for a vote on a $700 billion (384 billion pound) fund to buy bad debt to alleviate the financial crisis, the cost of short-term U.S. dollar funding in Asia on Monday drifted lower.

But if investors needed a reminder that the year-old global credit crisis was far from over, emergency bank nationalisations in Europe over the weekend provided one.

Financial group Fortis was forced to accept a 11.2 billion euro (8.9 billion pound) injection by the governments of Belgium, the Netherlands and Luxembourg after talks with European Central Bank President Jean-Claude Trichet to prevent financial contagion engulfing one of Europe's top 20 banks.

In Britain, the government will nationalise troubled mortgage lender Bradford & Bingley and is discussing the sale of its 24 billion pound deposit book and 200 branches, people familiar with the matter said.

And in Germany mortgage lender Hypo Real Estate struck a last-minute deal with a group of banks for credit to resolve a refinancing squeeze.

The rate on overnight dollar funds in Asia fell as low as 1.5 percent and was as high as 3 percent, dealers said. That compared with a range of 2.5 percent to 3.5 percent on Friday and 10 percent earlier this month when Lehman Brothers collapsed under the weight of too many risky assets on its books.