Brussels/London: The world’s major central banks acted jointly on Wednesday to provide cheaper dollar liquidity to starved European banks that are facing a credit crunch as the euro zone’s sovereign debt crisis threatened to bring financial disaster.

The surprise emergency move by the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the central banks of Britain, Canada and Switzerland recalled coordinated action to steady global markets in the 2008 financial crisis.

Markets boost: A trader works on the floor of the New York Stock Exchange on Wednesday. The Dow rose over 3% in mid-morning trade. Photo: Spencer Platt/Getty Images/AFP

US stocks rose more than 3% on Wednesday, following the move. The Dow Jones industrial average soared 420.35 points, or 3.64%, at 11,975.98. The Standard and Poor’s 500 Index rose 42.98 points, or 3.6%, to 1,238.17. The Nasdaq Composite Index advanced 89.46 points, 3.5%, at 2,604.97 at 21.23pm India time.

London’s stock market rallied by more than 3%. The benchmark FTSE 100 index jumped 3.33% to 5,514.75 points around 1335 GMT in the wake of the announcement.

In a related move, Italy’s central bank started emergency cash tenders for banks which have been squeezed particularly hard in recent weeks as Rome’s borrowing costs have soared towards 8%, a level seen as unaffordable in the long term.

“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union," Economic and Monetary Affairs Commissioner Olli Rehn said as EU finance ministers met.

Two years into Europe’s debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, south European banks are bleeding deposits and a recession looms, fuelling doubts about the survival of the single currency.

Euro zone leaders have agreed belatedly on one half-measure after another but have failed to restore confidence and now face a crunch moment at a 9 December Brussels summit.

Finance ministers agreed on Tuesday night on detailed plans to leverage the European Financial Stability Mechanism (EFSF), but could not say by how much because of rapidly worsening market conditions, prompting them to look to IMF.

“We are now looking at a true financial crisis—that is a broad-based disruption in financial markets," Christian Noyer, France’s central bank governor and a governing council member of the European Central Bank, told a conference in Singapore.

Italian and Spanish bond yields resumed their inexorable climb towards unsustainable levels on Wednesday, as markets assessed the rescue fund boost as inadequate.

Reuters’ Marius Zaharia in London, Erik Kirschbaum in Berlin, John O’Donnell in Brussels, Saeed Azhar and Kevin Lim in Singapore, Angela Moon in New York and AFP contributed to this story.