More European governments followed Germany's lead on Monday offering blanket deposit guarantees to savers in a frantic effort to calm fears among investors over the worst financial crisis in 80 years.
In the banking industry, France's BNP Paribas scooped up the assets of Fortis in Belgium and Luxembourg for 14.5 bln euros ($19.71 bln) to stem a cash drain on Fortis and Dexia.
On a frantic weekend, German officials clinched a revised rescue deal for lender Hypo Real Estate that will see commercial banks and insurers provide 15 bln euros in liquidity, on top of an initial pledge of 35 bln euros.
For its part, the U.S. Federal Reserve was pushing Citigroup Inc and rival Wells Fargo & Co to compromise over their competing bids for hobbled U.S. bank Wachovia Corp that could result in them carving up its assets.
European stocks began the week sharply lower with the FTSEurofirst 300 down 4.9% on concerns over the health of the financial sector.
Stocks in Asia-Pacific outside Japan dropped nearly 6% and Japan's Nikkei average hit a 4-1/2 year low.
"We have a seriously weak and fear-driven market on our hands," said Tom Hougaard, chief market strategist at City Index in London.
European banks have been hit hard by the fallout from a crisis that began in the United States when the housing market collapsed and bad mortgage debts multiplied.
The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialized countries closer to recession.
The U.S. authorities have responded with a $700 bln bank bailout to buy up so-called toxic assets.
EUROPEAN GUARANTEES
Sweden became the latest European Union country to act, with the government saying on Monday it would expand bank deposit guarantees and the central bank increasing the amount of loans offered to its banks.
It followed Germany's pledge on Sunday to guarantee private deposit accounts, a move which prompted similar action by Austria, Denmark. Ireland issued the first such guarantee last week.
This put pressure on other countries, such as Britain, which face the prospect of a drain in deposits from their less-guaranteed banks.
Separately, the Bank of Japan it offered to lend 1 trillion yen against pooled collateral in an auction to inject liquidity into the market and the Bank of England said it would offer $10 bln in an overnight repo operation.
All moves are designed to build confidence and provide liquidity to the frozen credit market, but the flurry of measures were failing to immediately reassure.
The crisis has also spread deeper into Asia. South Korea's finance minister said the country would dip into the world's sixth-largest foreign exchange reserves to help with loans.
"The government judges that we need to deal with the situation preemptively while assuming the worst-case scenario," Kang Man-soo said, adding it would take a long time until a U.S. financial bailout starts to help ease the credit squeeze in emerging markets.
DIVIDED RESPONSE
The stock market falls followed a hectic weekend during which leaders of Europe's four biggest economies — Germany, France, Britain and Italy — decided against a coordinated bank bailout, while vowing to stabilize markets.
Italian Prime Minister Silvio Berlusconi later said Italy would revive the idea of a common bank bailout fund at a meeting of finance ministers on Monday. The other three countries shot the idea down.
Another source of concern is Iceland, where officials, including from the central bank, have been working on a financial stability plan to address a crisis that has sent the country's currency spiraling lower and is seen as threatening its financial sector.
Expectations are building that a meeting of finance leaders from the Group of Seven major industrialized nations, scheduled for this week in Washington, could set the stage for coordinated interest rate cuts.
