Global financial turmoil prompted the Bank of Japan to hold rates on Thursday and warn the tremors would take time to settle, as stock markets climbed in spite of fresh strife stemming from the ravaged U.S. home loan market.
The Bank of Japan left its key policy rate unchanged for the sixth month running. Until global markets went into a tailspin, fearing a liquidity crisis, investors had expected the BOJ to tighten by a quarter-point to 0.75 percent.
BOJ Governor Toshihiko Fukui told reporters adjustments in financial markets may take time but he saw the moves as a re-pricing of risk and he would closely watch the subprime mortgage crisis for any impact on U.S. growth.
Attention will soon switch to the European Central Bank, which will announce the results of a surprise auction of 40 billion euros in three-month financing to money markets.
Indicating that liquidity problems were far from over, the ECB said on Wednesday the tender was a technical measure aimed at supporting the normalization of the market.
Stock markets strode onto the front foot as investors toyed with taking risk on board again.
European shares opened higher -- at 4:20 a.m. EDT, the pan-European FTSEurofirst 300 index was up 1 percent, at 1,520.60, rising for the fifth session in a row.
Asian stocks also jumped with markets from Tokyo to Sydney posting gains of more than 2 percent after signs that U.S. takeover activity could soon recover boosted Wall Street shares on Wednesday.
In a sign that pressure on money markets may be easing, Australia's central bank injected less cash into the banking system than in previous days.
But investors were still on tenterhooks for more casualties in the U.S. home loan market and any signs of wider economic damage.
I think there are still a lot of skeletons in the cupboard. Markets have really bounced, which I think is pretty scary given last week's panic, the markets head of a big European bank in Singapore said.
After data showed German economic growth slowed to 0.3 percent in the second quarter, Economy Minister Michael Glos said it would pick up but only when market tremors settled.
For this it's important that the impact of the turbulence in the financial sector remains under control and that markets regain confidence again, he said.
Fallout from the U.S. mortgage and credit crisis spread on Wednesday as Accredited Home Lenders Holding Co, HSBC Holdings
and Lehman Brothers said they would slash a total of 3,400 jobs as concern mounted about the longer-term impact on the economy.
Accredited a San Diego-based subprime specialist, will cut 1,600 jobs and shut most of its retail and wholesale operations. It also stopped taking loan applications.
Lehman will close its subprime unit BNC Mortgage LLC, axe 1,200 jobs and take $52 million in charges, while HSBC, Europe's largest bank, will close a Carmel, Indiana, office and cut 600 employees.
Speculation swirled that the Federal Reserve will cut its Fed funds rate, its key monetary policy tool, after slashing its discount rate for direct lending to banks last Friday.
A Reuters poll of economists showed 45 of 63 thought the Fed would trim the funds rate by its September 18 meeting, with 6 of those saying they will cut before then and 18 saying they will stay on hold. Most expected a quarter-point cut by then.
But for now, efforts by the Fed and ECB to deal with the worst liquidity and credit squeeze in a decade have helped stabilize financial markets, and perhaps given the U.S. central bank time to wait.
The ECB is still expected to raise rates next month after it said in a statement on Wednesday that its monetary policy stance was as laid out by President Jean-Claude Trichet on August 2.