Shares soared in the US and the UK today after the world's leading central banks announced a co-ordinated bid to prop up the global economy by injecting cash into the money markets.

The Federal Reserve and the European Central Bank will work with their counterparts in Britain, Canada and Switzerland to tackle the liquidity crunch by auctioning credit at favourable rates and arranging swap agreements to satisfy European banks' demands for dollars.

It is understood the joint effort will make available more than $100 billion this month. The US Federal Reserve is injecting $40 billion; the Bank of England, £22.7 billion ($46.4 billion); the European Central Bank (ECB) $20 billion, the Swiss National Bank $4 billion and the Canadian central bankers are providing $3 billion.

The co-ordinated effort is designed to combat what analysts have described as the worst credit crisis on record that follows the collapse of America's sub-prime mortgage market.

The banks hope that the new term auction facility at favourable rates will boost liquidity, ultimately benefiting their economies by making it easier for businesses and consumers to borrow money to invest and spend on goods and services.

The announcement heralds a major switch in policy for the Bank of England in particular, which has been at pains to avoid the "moral hazard" associated with lending too freely in a crisis.

The Bank will now auction £11.35 billion of funds next Tuesday, mostly for three-month periods, and with the only penalty rate over the base rate being the mark-up caused by overbidding by financial institutions.

The Bank will also tweak its rulebook to accept mortgage-backed securities as collateral, as well as covered bonds and dollar-denominated securities.

The Federal Reserve will auction $20 billion on Monday for a month and accept a wide range of collateral, and will provide $24 billion to European banks via currency sawps.

Today's co-ordinatied action is understood to have had its origins in the mid-November meeting of the Group of 20 at Cape Town.

TimesOnline has learnt that the actions were agreed in detail in subsequent conference calls between the between top figures at the five central banks over the past week. The meetings were convented at the Fed's initiative.

The measure was announced a day after a further quarter point cut in the key borrowing rate by the Fed failed to ease concerns about the credit crisis and its potential impact on the global economy.

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