Central banks fire new round at credit crisis

By Glenn Somerville

WASHINGTON (Reuters) - The U.S., European, and Swiss central banks on Wednesday extended emergency lending facilities for investment banks and expanded other liquidity programs to ease credit market strains that have weighed on the global economy for nearly a year.

The joint measures helped lift share prices in the United States and Europe, and were a factor in pushing up U.S. bond yields and the U.S. dollar.

The U.S. Federal Reserve said it was prolonging the emergency credit facility for primary dealers to January 30 which had been due to expire in mid-September.

The Fed said it acted "in light of continued fragile circumstances in financial markets," and said it would close down the lending program once it determined credit market conditions were no longer "unusual and exigent."

The Primary Dealer Credit Facility was launched in March after the near bankruptcy of Bear Stearns and it marked the first time since the Great Depression that the Fed had opened its emergency lending to investment banks.

Some analysts said the latest action suggested the Fed would be loathe to raise interest rates any time soon and interest-rate futures showed traders trimming back bets on the Fed raising rates this year.

"Until the Fed starts scaling back or eliminating its special liquidity-providing measures, rate hikes would create a glaring policy inconsistency -- conducting measures that effectively lower borrowing rates while simultaneously raising them," Michael Gregory, a senior economist at BMO Capital Markets in Toronto, wrote in a note to clients.

The Fed also said it would offer longer-term loans to banks under its Term Auction Facility, introducing 84-day offerings in addition to its current 28-day loans. The TAF was established in December to try to tamp down funding pressures.