By Wayne Cole and Cheon Jong-woo
SYDNEY/SEOUL, Sept 19 (Reuters) – Asia-Pacific nations kept up their efforts on Friday to shield the region from the fallout of Wall Street upheaval even as stock markets rallied in response to emergency action from the world's top financial authorities.
Japan and Australia pumped a further $20 billion into their money markets as lending remained tight despite Thursday's unprecedented $180 billion made available by the U.S. Federal Reserve to the global banking system.
New Zealand relaxed rules on collateral to ease funding conditions and South Korea's central bank chief promised to act aggressively and supply enough cash to the financial system to calm markets. Bank of Japan Governor Masaaki Shirakawa will brief lawmakers about the authorities' response to the crisis later on Friday.
The Chinese government was also trying to stabilise markets, buying shares in three of the biggest state-owned banks and ditching a tax on purchases of stocks.
Asian stock markets rallied on Friday taking cue from Wall Street gains overnight following news of a U.S. Treasury plan to create a fund that would mop up toxic debt, similar to one that helped resolve the savings and loan crisis of the late 1980s.
Britain imposed a temporary ban on short selling of financial stocks on Thursday. The Wall Street Journal reported U.S. regulators were considering a similar step and the Securities and Exchange Commission chairman Christopher Cox told reporters he could make a statement on the issue as early as Friday.
Short selling allows investors to profit from falling prices and has helped bring Wall Street icons to their knees.
The plans offered investors a glimmer of hope for resolution to the 13-month old credit crisis that sank Lehman Brothers, stripped Merrill Lynch and Bear Stearns of their independence and triggered a $85 billion bailout of insurer AIG.
But despite the relief share market rally and Thursday's coordinated massive global cash injections money markets remained jittery with overnight dollar funds changing hands in Asia at between 3 and 6 percent — off a peak of 10 percent hit on Tuesday, but still above the Fed's 2 percent target.
Mindful of sharp market swings in the past week and anxiety still gripping investors, officials sought to play it safe, expecting tight funding conditions would persist for some time.
"Even though we injected funds the tightness will last for a period of time as there are a lot of uncertainties and the development of the financial market is difficult to judge," Joseph Yam, chief executive of the Hong Kong Monetary Authority, told reporters.
The Bank of Japan pumped 2 trillion yen ($19.15 billion) into the money market for the fourth day in a row as overnight call rate stayed above the central bank's 0.5 percent policy target and there were signs that local lenders were shunning foreign banks.
"Lenders have become exceptionally conservative. Some foreign players are unlikely to get any money from the market," said a money dealer at a Japanese insurer.
Dealers said the money market remained tense despite Thursday's coordinated action by the world's six leading banks, including the BOJ, to supply dollar funds to markets.
In Australia, the central bank added A$2.03 billion ($1.6 billion) in its regular market operation repurchase agreements, while draining A$1.0 billion through a same-day forex swap. As a result it kept commercial banks' balances with the central bank near a record A$6.97 billion.
A key measure of funding pressure in Australia, the spread between three-month bank bill rates and three-month overnight index swap rates, surged to a record of 95 basis points, up from around 33 basis points at the start of the month.
