Central banks in Asia on Thursday joined their western counterparts and cut interest rates in an attempt to ward off the global financial turmoil threatening to stall the region’s decade-long economic boom.

The rate cuts in South Korea, Hong Kong and Taiwan, which helped Asian equities stage a modest recovery, came a day after China and six central banks, including the US Federal Reserve and the European Central Bank, slashed their rates.

Hopes that the global action could spur a recovery in the European and US markets quickly faded on Thursday as equities came under further pressure and the frozen money markets showed no signs of thawing.

In Tokyo, the Nikkei 225 index ended down 0.5 per cent, while Hong Kong advanced 3.3 per cent, having suffered an 8.2 per cent fall on Wednesday, its worst single-session loss since 1973.

In the UK, the FTSE 100 index ended the day down 1.2 per cent after opening strongly in the wake of the government’s £400bn ($690bn) bank bail-out, while the Dow Jones Industrial Average was also down 1.2 per cent in mid-afternoon trading.

Key three-month dollar London interbank rates also rose, while outstanding volumes of commercial paper in the US fell amid signs that banks are still hoarding cash as investors remained sceptical over the ability of the authorities to tackle the crisis of confidence that has plagued the markets.

Effective interest rates in Singapore are expected to be adjusted on Friday while Australia started the round on Tuesday.

Having come under pressure to halt soaring inflation over the past year, many Asian central bankers are now taking emergency steps to respond to signs of a sharp slowdown in their economies. “What central banks in Asia are saying is that there is enough evidence on the cards to say we’re in for a substantial slowdown and as that unfolds, we are going to see an easing of inflationary pressures,” said Duncan Wooldridge, Asia chief economist at UBS.

Mr Wooldridge is now forecasting growth in Asia, excluding Japan, of 5.5-6 per cent next year, down from 7 per cent this year and 9.5 per cent in 2007.

Some of the monetary interventions took investors by surprise, in particular in South Korea where authorities have been battling against a tumbling currency and where the cut was the first in four years. Analysts at Goldman Sachs said they had been expecting a rise, given the Korean currency’s freefall.

Both Taiwan and South Korea on Thursday shaved 25 basis points off their benchmark rates, down respectively to 3.25 per cent and 5 per cent. Taiwan’s central bank had not been scheduled to meet and had already cut rates 25bp two weeks ago.

The Hong Kong Monetary Authority lowered its benchmark rate by 50bp to 2 per cent, having already said it would bring down the rate by 100 basis points on Wednesday.

New Zealand’s central bank followed Australia’s lead in widening the range of securities it would accept from banks as collateral, while both Indonesia and Pakistan announced cuts in bank reserve requirements.

Additional reporting by Kathrin Hille in Taipei, Song Jung-a in Seoul and Tom Mitchell in Hong Kong

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