The world's major central banks have unleashed co-ordinated action to ease the increasing strains on the global financial system, a move that sent stock markets up sharply.

The European Central Bank, US Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland all took part in the operation, which is designed to "enhance their capacity to provide liquidity support to the global financial system."

The ECB said they are making it cheaper for banks to get US dollar liquidity when they need it, starting next Monday.

They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant.

Stocks surged following the news.

The financial system has been showing signs of entering another credit crunch as Europe's debt crisis has shown alarming signs of spreading.