ECB moves, markets rally

The two most important central banks in the world took coordinated action on Thursday to ease market nervousness. Bloomberg reports:

The European Central Bank said it will lend dollars to euro-area banks in a series of three-month loans as the region’s debt crisis limits market access to the U.S. currency.

The Frankfurt-based ECB said it will coordinate with the Federal Reserve and other central banks to conduct three separate dollar liquidity operations to ensure banks have enough of the currency through the end of the year. The three-month loans are in addition to the bank’s regular seven-day dollar offerings and will be fixed-rate tenders with full allotment, the ECB said in a statement today. They will be offered on Oct. 12, Nov. 9 and Dec. 7.

The action predictably boosted risk appetite on Thursday. Stocks rallied, the S&P 500 rising 1.7 percent to 1,209.11 and the STOXX Europe 600 rising 2.0 percent to 228.69. The euro rose 0.9 percent to $1.3877.

Ironically, the injection of liquidity came on a day when data were showing that inflation in the euro area and the US remains far from comfortable levels.

In the euro area, the inflation rate for August was 2.5 percent, unchanged from July.

In the US, the consumer price index increased 0.4 percent in August, resulting in the year-on-year increase in the CPI rising to 3.8 percent compared to 3.6 percent in July. In addition, a 0.2 percent rise in industrial production helped push capacity utilisation up 0.1 percentage point to 77.4 percent in August, the highest level since August 2008.