Thu Sep 18, 2008 4:17am EDT
* MSCI world equity index steady at 296.27
* Global central banks unveil coordinated liquidity action
* Dollar overnight interbank rates fall; European stocks up
LONDON, Sept 18 (Reuters) - The cost of borrowing dollars short-term fell on Thursday and European stocks turned higher, halting a global equity selloff, after leading central banks unveiled concerted action to ease acute money market stress.
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After the announcement, dollar overnight interbank rates indicated on Reuters <USDOND=> slid to 2 percent, compared with around 5.03 percent on Wednesday. Three-month interbank rates remained more than 250 basis points above expected U.S. interest rates.
"Any steps that help ease the liquidity problems, particularly ahead of end-quarter, are welcome," said Sean Callow, currency strategist at Westpac in Sydney.
"But markets know that central banks don't own a magic bullet, otherwise they would have used it already. And we've seen these sorts of steps before; it only addresses one of the symptoms of the underlying crisis."
In a volatile session, the FTSEurofirst 300 index rose 0.6 percent while MSCI main world equity index .MIWD00000PUS was up 0.1 percent, recovering after hitting its lowest level since November 2005.
"It is important to show that central banks among various countries are cooperating. That makes a psychological difference," said Tomoko Fujii, head of economics and strategy for Japan at Bank of America in Tokyo.
"But when you think about the reasons behind the losses, it is because housing prices are falling, and it is not as if such losses are going to disappear and the economy is going to improve tomorrow."
EXTREME FEAR
The dollar jumped 0.8 percent to 105.21 yen <JPY=> while it rose 0.15 percent .DXY against a basket of major currencies.
The December Bund future FGBLc1 was up 10 ticks, following a rally in safe-haven U.S. government bonds on Wednesday.
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http://www.reuters.com/article/marketsNews/idINLI38443620080918?rpc=611&sp=true