US calls for unity as markets dive

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New York, October 7:: Governments around the world scrambled for new measures to contain the fast-spreading credit crisis as stock, bond and commodity markets bet on deepening uncertainty and a sharp downturn.

US officials called for a "forceful and coordinated" global reaction to the crisis, and US stocks bounced back from a five-year low on signs policymakers were readying new steps to thaw frozen credit markets.

Even after late-day gains, the Dow Jones Industrial Average closed down 3.5 per cent on Monday, capping its worst four-day point run since September 2001.

Stock markets in Europe and Asia were also hammered in the first full-day of global trade since the US Congress approved a $700 billion bailout intended reassure markets that help was on the way.

Instead, a crisis that began with the overheated US property market and the $11 trillion US mortgage market was still rocking confidence worldwide.

"The ground underneath our feet is moving like an earthquake," said acting US Treasury Undersecretary for domestic finance Anthony Ryan.

Expectations have built for a rate cut by the US Federal Reserve, possibly as part of a coordinated move with the European Central Bank.

Fed fund futures have priced in a probability of a 75-basis-point cut by the US central bank this month.

Federal Reserve Bank of Dallas President Richard Fisher, considered an inflation hawk, said capital markets were in "semi-panic" and said he was more worried about markets breaking down than upward pressure on prices.

"What I'm more worried about is how dysfunctional the system has become and what we, as the lender of last resort, need to do to encourage the liquidity to flow," he said.

The US Treasury, charged with putting the $700 billion fund to work to buy up bad debt, named Neel Kashkari, a veteran banker from Goldman Sachs, to head the landmark program.

The New York Federal Reserve moved toward establishing a central clearing mechanism for credit default swaps, a form of over-the-counter insurance against bankruptcy blamed by critics for destabilizing the entire financial system.

Other steps aimed at shoring up banks and easing pressure on credit markets could be coming -- a Treasury official said the $700 billion US bailout fund could be used to buy company shares.

A person familiar with the matter also said the US Treasury and Fed could take steps to support the commercial paper market -- a crucial way for corporate borrowers outside the financial sector to raise short-term funds.