The world’s main central banks took bold concerted action to pre-empt a looming dollar funding crisis in Europe, sparking a rally in eurozone bank shares and the euro.

Five central banks including the European Central Bank, the Bank of England and Switzerland’s central bank said that they would provide three-month dollar loans to banks from October, which will cover the year-end period. The display of firepower was intended to prevent an escalation of financial market tensions and signal that authorities are prepared to take action to boost market confidence.

Within minutes of the announcement, European banking shares led a strong rebound in equity markets. BNP Paribas, one of the French banks that had suffered most on rumours of funding problems, rose as much as 22 per cent before closing up 13 per cent. Société Générale, another embattled French bank, finished up 5 per cent while Italy’s Intesa Sanpaolo and UniCredit gained 10 and 7 per cent. “This is good news as the stress in funding markets was starting to become self-reinforcing,” said Huw van Steenis at Morgan Stanley.