Western governments and central banks faced demands for coordinated action on Tuesday after Australia responded to the escalating global financial crisis by cutting its interest rates sharply.
In the second full day of global trading after American lawmakers approved a $US700 billion bailout intended to reassure markets, it was clear that whatever reassurance had been delivered was insufficient.
Equities across much of Asia and commodity prices rallied after the Australian central bank slashed its benchmark cash rate by 100 basis points to 6%, the biggest single cut since 1992.
Investors hoped that central banks in Europe and the United States could follow suit.
European stock markets slid in mid-morning trade on Tuesday, with the main indexes in London, Paris and Frankfurt all back into the red, wiping out initial gains.
Japan's Nikkei sank more than 5% - below the 10,000-point barrier - before recovering slightly to close 3% down, as the panic that swept through Europe and the United States on Monday hit Tokyo.
The New Zealand share market opened at a three-year low on Tuesday, down 2.6%, following the heavy losses on Wall Street but recovered some ground and by the close of trade was about 1.5% lower.
The New Zealand dollar also recovered 1 cent after falling 4c overnight in its biggest one-day fall since the currency was floated in March 1985, as nervous investors pulled back to the safe havens of the US dollar and the Japanese Yen. At 5pm on Tuesday, the Kiwi was steady at around US63 cents.
The Australian stock market rebounded to close almost 2% higher after the Reserve Bank of Australia announced it would cut the official cash rate.
EU seek common solution
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.
"We need to find a common solution as one country's solution may be another country's problem," Swedish Finance Minister Anders Borg said.
US officials have called for a "forceful and coordinated" global reaction to kickstart anaemic bank lending, but such a unified approach remains elusive.
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.
Sparked by the collapse in the US housing market and increase in bad loans, the crisis is the worst to hit the banking world in 80 years. People around the world are worried about protecting their savings and keeping their jobs as some of the pillars of global finance give way.
Europe, US eye rate cuts
Economists said the Australian rate cut might be followed in Europe and the United States.
Fed fund futures have priced in a probability of a 75 basis-point cut by the US central bank in October.
The Bank of England is expected to cut rates on Thursday and the European Central Bank last week flagged it too could lower its rates.
However, there were already doubts about whether the aggressive rate cut in Australia could shock the country's banks back into lending, with the National Australia Bank holding off on lowering its standard variable rate until markets calmed.
Japan's central bank, with far less room to manoeuvre, voted to keep rates unchanged, but gave a grim prognosis for the economy that hinted at more actions to boost liquidity.
