By Keith Weir
LONDON (Reuters) - Finance ministers from the world's top economies faced calls on Thursday for united action after an emergency round of interest rate cuts and government support for ailing banks won only muted market support.
The United States signaled it could consider buying into banks to help get frozen funds flowing again and governments in Europe moved to try to restore confidence in financial firms hit by the worst crisis since the 1930s.
South Korea, Hong Kong and Taiwan lowered their interest rates after coordinated cuts on Wednesday from major central banks including the U.S. Federal Reserve.
European Central Bank council member Miguel Angel Fernandez Ordonez said further coordinated rate cuts were possible.
"In the short-term it seems absurd, but I don't rule anything out. I think yesterday's move was very important," Ordonez said.
The measures were designed to contain the market meltdown that has destroyed lenders from Wall Street to Iceland. People are worried about the security of their savings and jobs and much of the industrialized world is on the brink of recession.
Attention was turning to a meeting in Washington on Friday of finance ministers from the Group of Seven wealthy nations.
Investors want politicians from the G7 and European Union to show they can cooperate more effectively rather than rely on piecemeal national initiatives.
British Prime Minister Gordon Brown has urged the G7 and EU to guarantee lending between banks, in line with measures Britain has introduced domestically.
However, EU states, criticized for their fragmented response to the crisis, remained divided over the need to set up a financial supervisor with responsibility across Europe.
European Commission President Jose Manuel Barroso said he was not satisfied by the level of cooperation among the bloc's 27 members.
The Financial Times newspaper underlined the importance of the G7 gathering.
"The Group of Seven meeting offers a unique and timely opportunity for policymakers to show leadership by presenting a credible and coordinated framework to solve the crisis," it wrote in an editorial.
MARKETS MIXED
There was little sign Wednesday's rate cuts had unlocked money markets.
Three-month borrowing on interbank markets remained expensive near this week's highs across all currencies, and lending beyond a week or two remained frozen, traders said.
Stock markets were mixed. Japan's Nikkei dipped to its lowest close in more than five years after a volatile day. European stocks traded around 1.5 percent higher after falling to near five-year lows on Wednesday despite the rate cuts.
U.S. shares were expected to open higher, breaking a six-day losing streak in which they have shed almost 15 percent.
U.S. markets face additional uncertainty after a ban on short-selling of financial stocks expired at midnight on Wednesday. Short-sellers bet on falling stock prices and had been blamed for driving share prices lower.
TAKING STAKES?
The New York Times, quoting unnamed government officials, said the Treasury was considering taking ownership stakes in many U.S. banks.
U.S. Treasury Secretary Henry Paulson, speaking to reporters, stressed that the recently approved $700 billion financial bailout bill gave him wide authority to inject capital into the banking system and would not rule out having Treasury take an ownership position in banks if necessary.
The bank recapitalization plan, in its preliminary stages, has emerged as one of the preferred options being discussed in Washington and on Wall Street, the New York Times said.
The United States would be taking a leaf out of Britain's book. London said on Wednesday it was prepared to inject 50 billion pounds ($87 billion) of taxpayers' money into its banks and guarantee interbank lending.
(Additional reporting by Reuters global bureaus; Editing by Mike Peacock)
