Global financial turmoil prompted the Bank of Japan to hold rates on Thursday and warn that the tremors would take time to settle, and the European Central Bank was inundated with demand at a new money market tender.
The Bank of Japan left its key policy rate unchanged for the sixth month running. Until global markets went into a tailspin, fearing a liquidity crisis, investors had expected the BOJ to tighten by a quarter-point to 0.75%.
BOJ Governor Toshihiko Fukui told reporters adjustments in financial markets would take time and he would closely watch the subprime mortgage crisis for any impact on U.S. growth.
"I think it will take some time. Repricing of risk will probably lead to realisation of losses. The process could be painful," he said.
The European Central Bank added 40 billion euros ($54.2 billion) in three-month funds to the euro interbank money market but failed to bring much relief to a market still hit by credit worries.
Some 146 banks bid at the first ever injection of three-month funds outside the ECB's normal monthly schedule, asking for a total of 125.8 billion euros in funding.
"The people who require the money still can't get the money. The money is lying in the wrong place and wrong bank accounts. The people who have it aren't lending it out," said a trader at a large bank.
Central banks have injected massive short-term funds into money markets in an attempt to alleviate the liquidity squeeze.
Undeterred, stock markets turned modestly positive as investors toyed with taking risk on board again.
European shares were up - the pan-European FTSEurofirst 300 index 0.5% ahead at 1,512.26, rising for the fifth session in a row.
U.S. stocks opened a little higher as Bank of America's $2 billion injection into troubled U.S. mortgage lender Countrywide helped lift investor confidence. Stocks across Asia had earlier bounced by a more robust 2% or more.
But investors were still on tenterhooks for more casualties in the U.S. home loan market and any signs of wider economic damage.
"I think there are still a lot of skeletons in the cupboard. Markets have really bounced, which I think is pretty scary given last week's panic," the markets head of a big European bank in Singapore said.
After data showed German economic growth slowed to 0.3% in the second quarter, Economy Minister Michael Glos said it would pick up but only when market tremors settled.
"For this it's important that the impact of the turbulence in the financial sector remains under control and that markets regain confidence again," he said.
IMF Director General Rodrigo Rato said projections for growth in the world economy could be revised down slightly because of the global credit squeeze.
Fallout from the U.S. mortgage crisis spread on Wednesday as Accredited Home Lenders Holding, Europe's largest bank HSBC Holdings and Lehman Brothers said they would slash a total of 3,400 jobs and close some operations.
Fed Seen Cutting Rate
Citigroup, Bank of America and three other top banks borrowed more than $2 billion in total from the Fed on Wednesday, in a bid to reassure markets and remove the stigma of getting short-term financing from the central bank, even though they had ample access to funds elsewhere.
Speculation swirled that the Federal Reserve would cut the Fed funds rate, its key monetary policy tool, after slashing its discount rate for direct lending to banks last Friday.
A Reuters poll of economists showed 45 of 63 thought the Fed would trim the funds rate by its September 18 meeting, mostly by a quarter point, with 6 of those saying they will cut before then. Eighteen said they will stay on hold.
But for now, central bank efforts to deal with the worst liquidity and credit squeeze in a decade have helped stabilise stock markets, and perhaps given the Fed a breathing space.
The ECB is still expected to raise rates next month after it said in a statement on Wednesday its monetary policy stance was as laid out by President Jean-Claude Trichet on August 2.