Central banks on Wednesday progressively withdrew the cash they recently injected into money markets as the focus of the global credit storm rolled into emerging markets and currencies.

For the first time since last Thursday the European Central Bank, like the U.S. Federal Reserve a day earlier, gave no extra short-term money to keep the financial system operating smoothly and central banks in Japan and Switzerland actively drained cash from their local markets.

But as stocks slid from Tokyo to London, major currencies tumbled against the Japanese currency and emerging market assets reeled, analysts said they were concerned an even bigger crisis than a liquidity squeeze was brewing.

The turmoil in financial markets continues with a greater contagion in Asia, emerging markets and investment grade credit, Tullett Prebon G7 economist Lena Komileva said.

Emerging Asian central banks took further steps to smooth trade in the region's currency markets as ongoing credit fears hit stocks and sent the yen to a 4-1/2-month high.

Our view (is) that this market correction will take longer than previous episodes which carries risks that it could presage a greater liquidity crunch in September when capital markets normally experience a seasonal pick-up in activity, Komileva said.

Central banks around the world have pumped hundreds of billions of dollars of extra funds into markets to ease worries about the widening impact of the U.S. subprime mortgage crisis, which threatened to paralyze credit markets.

Since then they have eased back on the choke, withdrawing much of the extra cash. ECB President Jean-Claude Trichet said on Tuesday money market conditions had progressively returned to normal, although the central bank would continue to watch developments closely.

The ECB, which had flagged each of its four special short-term funding operations since last Thursday by 6:30 a.m. EDT, had made no such announcement by that time on Wednesday. Banks repay 7.7 billion euros from the last one-day injection today but also get access to 310 billion euros in regular funding which will stay in the system for a week.

Earlier on Wednesday the Bank of Japan aggressively drained funds from the banking system for the second straight session and traders said the Swiss National Bank also mopped up liquidity.

The Fed and the Bank of Canada refrained from topping up liquidity and money market rates in both euros and dollars were back around normal levels in European trade.

The overnight money market has normalised a little and the fact that the BOJ is prepared to drain cash seems to suggest that the market has steadied, said David Cohen, economist at Action Economics.

Central banks seem to be implicitly assuming that as long as the credit turmoil doesn't spiral out of control and doesn't interrupt the availability of real sector financing there is enough momentum in the global economy.

ASIAN WORRIES

Central banks in Malaysia, Indonesia and the Philippines were suspected of intervening once again, selling dollars to slow the declines in their currencies.

Traders said Bank Indonesia had sold an estimated $800 million to $900 million to stop the rupiah from falling beyond 9,400 per dollar.

The Malaysian ringgit fell to a five-month low and the Philippine peso to its lowest in more than a month.

European shares slide in early trade, tracking declines in Asia and the United States, as the rising number of financial institutions revealing credit-related problems hit bank stocks.

Sentinel Management Group Inc, which oversees about $1.6 billion in assets, sought to prevent clients from withdrawing their cash to avoid having to liquidate investments at a discount.

A Canadian rating agency also warned of possible defaults in the C$116 billion ($109 billion) market for asset-backed commercial paper, with one issuer saying it couldn't repay some short-term debt.

Australian hedge fund Basis Capital also said on Wednesday that losses at one of its funds may exceed 80 percent because of further credit deterioration. Basis Capital was believed to have had around US$1 billion under management before the blow-up in credit markets.

(Additional reporting by Sven Egenter in Zurich)