The frozen money markets today showed tentative signs of thawing as central banks and governments around the world battled the financial crisis.

Three-month sterling Libor, the rate banks charge each other to borrow pounds, eased slightly from 6.285% to 6.269% while the dollar rate and euro rate also fell.

It came as British banks tapped the taxpayer for emergency funding, the authorities in Europe agreed a bailout that could be worth as much as €300 billion (£236 billion), and the US Federal Reserve pledged to flood the market with dollars.

Although Libor was down slightly, it remained stubbornly above official borrowing rates. Experts warned the spread between sterling Libor and the Bank of England rate of 4.5% was still worryingly high, meaning mortgage costs and other loan rates are unlikely to fall for some time.

Vicky Redwood of Capital Economics said: "The Government's recapitalisation of the UK banking system means that the worst-case scenario of a depression driven by an abrupt contraction in bank lending may have been avoided. But we doubt that the outlook for bank lending has improved enough to prevent a prolonged recession."

Banks are still scared to lend to each other despite the efforts of the authorities around the world.

In the latest co-ordinated move by central banks, the Fed made unlimited amounts of dollars available through the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank.

Earlier the Group of Seven nations pledged to take "all necessary steps" to stem panic after stock markets dived 20% last week. European leaders also promised to guarantee loans between banks and put money into them by buying shares, just as the UK Government has done.

"Taken together, the latest moves increase the chances that we will begin to see some relaxation of the intense funding stresses," said Goldman Sachs economist Dominic Wilson. "This is because bank solvency risk should decline as the government offers protection."