The U.S. and other nations fought on multiple fronts Wednesday to contain a deepening financial crisis before it triggers a global recession.
Underscoring a dramatic shift in global financial influence toward rising powers, Treasury Secretary Henry Paulson called for a special meeting of the Group of 20 nations to brainstorm crisis remedies.
The meeting Saturday in Washington will bring together the deeply troubled U.S. and European economies with the cash-rich stars of the developing world, such as China, Brazil and Saudi Arabia. The G-20 produces 90% of world economic output.
Paulson said the U.S. was attacking the credit crunch with numerous tools. But he warned that the upheaval would not end soon and said Americans must show "some measure of patience."
Also Wednesday, the U.K. guaranteed interbank lending and injected about $87 billion into its banks, hoping to spur lending. And central banks in six countries, including the U.S., lowered interest rates by half a percentage point in a historic joint attack on clogged global capital channels. China followed with a 0.27-point cut.
Financial markets were unimpressed. The Dow Jones industrial average skidded 189 points, or 2%, to 9258, its sixth drop in a row.
Credit markets also remained locked up. The London Interbank Offered Rate, the rate banks charge each other, rose 1.4 percentage points to 5.38%.
Jay Mueller, portfolio manager at Wells Capital Management, says the rate cuts will eventually bear fruit. "It's like taking antibiotics," he says. "You may not feel better the next day."
On Friday, finance ministers from the G-7 advanced nations will discuss crisis-fighting steps. One option: helping cash-starved U.S. corporations tap the massive dollar reserves of countries in Asia and the Middle East.
Chronic U.S. trade deficits have resulted in a huge transfer of wealth to Asian exporters and oil producers. China alone has $1.8 trillion in foreign-exchange reserves.
Monetary authorities now are eyeing ways that Asian banks, largely unaffected by the subprime mortgage losses that have devastated U.S. and European institutions, could tap those reserves for loans to top-shelf U.S. corporations.
The aim: "recycling dollar reserves into the commercial sectors where credit has been cut off," said Adam Posen of the Peterson Institute for International Economics. That could help U.S. companies meet payroll and other operating expenses. But it would allow foreign banks to gain market share at the expense of their weakened U.S. rivals.
Contributing: Matt Krantz