The Bank of England, the US Federal Reserve and other central banks in Canada and mainland Europe lowered interest rates in an emergency co-ordinated move to stem the worst financial crisis since the Great Depression of the 1930s.

The Bank of England, the US Federal Reserve and other central banks in Canada and mainland Europe lowered interest rates in an emergency co-ordinated move to stem the worst financial crisis since the Great Depression of the 1930s but the action failed to halt turmoil on global share markets as rattled investors feared the credit squeeze may topple more banks and tip the global economy into recession.

The Fed, the European Central Bank, the Bank of England, the Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which did not participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 of a percentage point.

"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," according to a joint statement by the central banks. "Some easing of global monetary conditions is, therefore, warranted."

In a separate move, the ECB, the Bank of England and the Swiss National Bank offered another $90bn in overnight money to the financial sector. The ECB offered up $70bn, while the UK central bank and the SNB both offered $10bn.

The Bank of England's Monetary Policy Com- mittee, which had been due to meet yesterday and today but cancelled it deliberations, trimmed base rates to 4.5% while the Fed's decision brought its benchmark rate to 1.5%. The ECB's main rate is now 3.75%; Canada's fell to 2.5%; and Sweden's rate dropped to 4.25%. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93%.

The MPC said inflation fears had diminished while the "recent intensification" of the financial crisis has "augmented the downside risks to growth" - Bank of England terminology for recession worries.

Its statement warned: "Data released over the past month indicate that the outlook for economic activity in the United Kingdom has deteriorated substantially."

The UK rate cut followed a government promise to put in as much as £50bn to bolster banks' balance sheets after weeks of market mayhem that has wiped out half the value of some of Britain's biggest financial institutions.

City analysts welcomed the rate reduction action but many remained cautious on the prospects for the British economy. Julian Jessop of Capital Economics said: "(The) co-ordinated half-point rate cuts from all the major central banks will provide at least a temporary boost to confidence but we fear that there is still a lot more work to do.

"For a start, the fact that the central banks have had to take such extreme measures underlines how bad market conditions have become."

Square Milers said further rate cuts were likely as the economy had already ground to a halt even before the year-old credit crisis tightened its grip in the last month.

"We expect the Bank of England to cut interest rates by a further 25 basis points in both November and December, taking them down to 4% by the end of this year," said Howard Archer, economist at Global Insight. "Furthermore, we would not rule out deeper cuts if there is no easing in the financial sector problems. We also expect interest rates to come down to 3% in 2009."

The respected National Institute of Economic and Social Research said Britain's economy shrank by 0.2% in the third quarter. Each month the think-tank estimates how fast the UK economy has grown over the past three months, and says its figure is usually within 0.2 percentage points of the estimate published later by the Office for National Statistics.

The NIESR said last month the British economy shrank by 0.2% from May to July, and that this month's estimate was the first calendar quarter contraction it had calculated since it started producing the series in 1998.

Meanwhile, the Inter-national Monetary Fund cut global growth to 3%, the slowest pace since 2003, and down from its July forecast of 3.9%. IMF experts also said they expect UK economic growth to slip to 1% this year and then contract by 0.1% in 2009 before climbing back to 2.2% in 2010.

The latest action by the central banks failed to stabilise European bourses, which have notched up huge losses in recent sessions largely on recession fears. Earlier, Tokyo's Nikkei index plunged 9.4% on deepening concern over long-term fallout from the global financial crisis.

The UK's top share index slid 5.18% by the close of dealing, driven lower by weak commodity stocks, but Royal Bank of Scotland and HBOS rebounded on news of the UK rescue plan. However, other banks like Barclays and Lloyds TSB and major insurers finsihed lower.

The FTSE-100 benchmark index ended the day 238.53 down at 4366.69, after falling to 4245.3 to touch a five-year low earlier in the session. The blue-chip barometer is down nearly 35% for the year.

New York stocks opened lower in volatile trading as investors feared that the co-ordinated rate cuts would fail to unfreeze the credit markets and avert a global recession.

Adding to Wall Street's nervousness, the third- quarter earnings season started poorly after Alcoa, a big aluminium group, reported a lower-than-expected profit and said it was halting major capital projects in the face of uncertain markets.

The Dow Jones industrial average later closed 189.01 points lower at 9258.10.