Bank pumps £5bn into money markets

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The Bank's second such move in three days came as it held talks with the heads of major banks starved of cash in the credit crunch.

London's FTSE 100 Index finished nearly 1% lower, with the leading share index down 2.5% overall after four days of volatile trading and the launch of a probe into claims of market abuse.

The Bank's £5 billion extra brought its total funding available to £10.9 billion, although financial institutions called for almost three times as much.

The increased funds will be made available until the beginning of April. The European Central Bank also followed the BoE's lead by lending more cash.

The Bank held discussions over the current turmoil and the current Treasury consultation under way on reforms to improve financial stability and protect savers' deposits.

It said: "The Bank of England and the banks agreed to continue their close dialogue with the objective of restoring more orderly market conditions."

The UK's biggest mortgage lender, Halifax Bank of Scotland, saw a stock market recovery after being struck by rumours of funding problems on Wednesday.

The Bank of England was forced to step in and deny the talk about HBOS swirling around the City, which prompted a probe by the City watchdog, the Financial Services Authority (FSA). On Thursday HBOS was the Footsie's third-best performer however, gaining more than 6%.

Some experts raised doubts about the FSA investigation. David Jones, chief market strategist at IG Index, said: "If rumours causing share prices to fall are going to be investigated, then are rumours that result in share prices going up, for example regarding potential takeovers, going to be given the same weight? If so, market regulators should be kept very busy."