THE European Central Bank and the Bank of England have joined the Federal Reserve in taking action to soothe financial markets spooked by Lehman Brothers Holdings Inc's bankruptcy filing.

The ECB said it awarded banks 30 billion euros (US$42.6 billion) in a one-day money-market auction that was more than three times oversubscribed. The Bank of England loaned banks 5 billion pounds (US$9 billion) for three days. Earlier, the Federal Reserve widened the collateral it accepts for loans to securities firms.

"It remains to be seen whether today's (Monday) operation will be sufficient to restore market confidence," said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc. "The ECB will likely wait for the United States markets to open to consider more aggressive action. Key will be how credit and equity markets develop in the coming days."

The ECB said it injected the funds at a marginal rate of 4.3 percent. The Swiss central bank offered liquidity through its overnight facility for the first time since February 22, according to Bloomberg News.

"We have to be extraordinarily alert," ECB President Jean-Claude Trichet told reporters in Frankfurt yesterday. "We have said it in recent weeks" that "it's an ongoing market correction" with "episodes of a high level of volatility."

The ECB and the Bank of England may nevertheless hold off cutting rates right away as they seek to curb inflation. The ECB has spent much of the past year arguing that it can use its money market operations to tackle the credit crisis and doesn't need to resort to rate cuts.

"Rate cuts are only likely to be forthcoming if financial markets melt down in the coming days or weeks," said David Mackie, chief European economist at JPMorgan Chase & Co.

"For the time being, European policy makers look like they will continue to hold the line on the separation of powers. At some point though, that line could be reached."

Trichet said in his speech yesterday that "price stability is a prerequisite for financial stability, a very important objective at the current juncture."

The ECB was the first central bank to respond when credit markets first seized up in August last year by offering financial institutions unlimited funds.