Central bankers in Europe on Wednesday intensified efforts to quell the turmoil in global money markets as evidence emerged that tighter borrowing conditions might be denting parts of the US economy.

Demand for homes in the US fell to a six-year low in July, according to figures released by the National Association of Realtors. Economists had expected pending home sales to fall 2 per cent, but instead they dropped 12.2 per cent in the month.

Meanwhile, the US Federal Reserve beige book survey of economic conditions showed that most regions of the US saw “tighter lending standards for residential mortgages”, which the report said were having a “noticeable effect on housing activity.”

Several regions also reported that the tightening of credit conditions had spilled over into residential real estate. But the beige book said that outside real estate there were only “limited” reports of market turmoil affecting the economy.

The pressure on housing will probably reinforce the belief among top Fed officials that it may have to cut interest rates on September 18.

But the lack of evidence of spillovers outside real estate – and the fact that almost every region reported “at least modest increases in employment” over the period – which ended August 27 – highlights the difficulty of this decision.

Concern over the economic damage from money market pressures shook equities. At midday in the US, the S&P 500 index was down 1.4 per cent at 1,469.08. Earlier, the FTSE Eurofirst 300 index had closed 1.7 per cent down while the FTSE 100 retreated 1.7 per cent in the UK.

The falls came as the Organisation for Economic Co-operation and Development warned of the US economy being likely to face a “quite significant” slow­down this year because of the subprime crisis, and said it could warrant an early interest rate cut.

Home builders met Ben Bernanke, the Fed chairman, to discuss the problems facing their industry.

Money markets also suffered another day of mounting pressure that saw the Bank of England abandon its “business-as-usual” stance towards commercial banks and announce its willingness to offer more cash to banks in its regular monthly money markets operations.

This move, which could result in an additional £4.4bn (€6.51bn) worth of funds being placed in the markets next week, isintended to encourage banks to start lending more freely to each other.

Separately, the European Central Bank announced it was ready to conduct a fresh round of liquidity-boosting operations today if volatility in the euro money market continued to rise. “Should this persist . . . the ECB stands ready to contribute to orderly conditions in the euro money market,” it said, shortly before the ECB and Bank of England each convened their regular committees to discuss monetary policy.

The British Bankers Association welcomed the Bank’s move, saying it brought “better liquidity to the market.”

Yet, private sector bankers in London suggested the Bank’s actions were far too timid, given the paralysis in money markets. Although the Bank said it hoped to reduce the rate of borrowing in overnight sterling markets, it ruled out acting in the three-month money markets.

The Bank’s actions helped lower the overnight sterling borrowing rate to 5.90625 per cent, from 6.11 per cent on Tuesday. The three-month money rate rose to 6.8 per cent – a nine-year high – as banks hoarded cash because of fears they would face liquidity calls in the next few days.

In the euro-denominated markets, overnight and three-month money rates also rose. In the US, three-month money was trading at 5.72 per cent, an abnormally high level.

The pressure on central banks to alleviate the funding squeeze is being fuelled by signs that the financial problems may now be contributing to new stress in the real economy.

“The data is a less than gentle reminder that the current crisis is more than a financial sector phenomena but already has a strong real economy component,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

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