European Central Bank President Jean-Claude-Trichet heading into the Bank's headquarters in Frankfurt.

The European Central Bank, in an unprecedented move today in response to a sudden demand for cash from banks hit by the subprime mortgage collapse in the US, issued emergency loans of €94.8 billion ($130.2 billion) to ease a credit crunch.

The overnight rates banks charge each other to lend in dollars rose to the highest level in in six years. The London Interbank Offered Rate (LIBOR) rose to 5.86% from 5.35% and in euros increased to 4.31% from 4.11%. Overnight dollar rates surged from 5.22% on Wednesday to 5.86%, the highest level since 2001.

Shortly after the ECB move, US federal funds futures contracts on the Chicago Board of Trade priced in a 100% chance of a Federal Reserve rate cut in September. On Wednesday, the market odds of a cut at that time were just 25%. The large shift in futures could indicate the Fed is also pumping liquidity into the system.

The ECB said it would provide unlimited cash as the fastest increase in overnight Libor since June 2004 suggested banks are reducing the supply of money just when investors are retreating because of losses from the US home lending contraction.

French bank BNP Paribas SA halted withdrawals from three investment funds today because it couldn't value its holdings.

BNP Paribas blamed a “complete evaporation” of liquidity for the drastic step.

There were also concerns that one of Germany’s largest banks may have also been affected. Earlier the Bundesbank was forced to deny rumours that it was holding emergency talks to discuss problems at WestLB, the German bank.

The ECB said today it provided the largest amount ever in a single so-called ``fine-tuning'' operation, exceeding the €69.3 billion provided on Sept. 12, 2001, the day after the terror attacks on New York.

In the US, the U.S. Federal Reserve added $12 billion in temporary reserves to the banking system today when it arranged 14-day repurchase agreements, or repos, about the amount analysts forecast. On Tuesday, the Fed said ``tighter'' credit conditions aren't a threat to economic growth.

News of the ECB's emergency funding prompted a sell-off in global equities.

The Standard & Poor's 500 Index decreased 17.25, or 1.2 percent, to 1479. The Dow Jones Industrial Average retreated 131 points, or 1 percent, to 13,518.77. The Nasdaq Composite Index slipped 17 points or 0.63% to 2597.

National benchmarks fell in all 18 western European markets. The U.K.'s FTSE 100 dropped 1.88%; Germany's DAX decreased 1.78% and France's CAC 40 lost 2.17%. The Stoxx 50 lost 1.8 and in Dublin,  the ISEQ fell 2.19%.

In the US, shares of Dow component Home Depot plunged 4.6% after the company reduced the price on its tender offer to $37-$42 from $39-$44 and said it may lower the $10.3 billion sale price of its HD Supply unit to three private-equity firms.