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The ECB said it allocated more than €348 billion euros ($A584 billion) at a flat rate of 4.

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21 percent in a refinancing operation spokesman Niels Buenemann said was aimed “at helping the banks over the end year period.”

Mr Buenemann said while the operation should help smooth out a period “which is always tense, but this year particularly,” the ECB would make more cash injections in 2008 if needed to ensure credit markets were well supplied.

“There is no time limit” to the central bank's refinancing strategy, he told news agency AFP. Its reference refinancing rate currently stands at 4.0 percent.

The Euribor money market rate for two-week funds fell following the announcement to 4.45 percent from 4.95 percent on Monday, while the three-month rate eased back to 4.88 percent from 4.95 percent.

Concerns raised in Eurozone

Analyst reactions to the ECB move varied, with most agreeing the year-end explanation held up while also noting market concern that things could be worse than previously thought among the eurozone banks.

“It's beginning to look a bit more desperate, isn't it,” commented Johathan Loynes at Capital Economics.

“It raises concern that things must be particularly bad in the eurozone,” he said, in particular since coordinated action announced last week by five major central banks in Europe and North America had not calmed money markets.

At Investec Securities in London, economist David Page added: “It does beg the question whether or not the ECB has a greater level of concern about banks within the eurosystem banking setup than elsewhere.”

Subprime woes

A currency swap unveiled last week between the US Federal Reserve and the ECB to provide dollars to eurozone banks suggested to Mr Page that the biggest problem was losses connected to the US subprime housing market debacle.

“The implication is that a lot of eurosystem banks are exposed in US markets, perhaps more so than we are currently aware of,” he said.

Bank of America economist Gilles Moec focused on the year-end issue, when banks close their books amid increased demand for cash owing to the holidays.

“The ECB is trying to flood the money market with cheap liquidity” and bank officials “hope that once the year is through, banks will resume lending to each other.”

Credit markets dried up owing to fears that banks seeking to borrow money might face huge subprime-related losses and not be able to repay the loan.

Many banks were now also hoarding cash, Mr Moec said, “to show shareholders and investors they are not at risk and can cope with the consequences of the subprime crisis.”

At the Swiss bank UBS, economist Stephane Deo said the ECB was right to focus on getting through the end of the year, but added: “I'm not sure it will have a huge impact” because money market rates had not moved much.

He added however that the bank was limited only by the amount of eligible collateral for its refinancing operations, currently 10.8 trillion euros.

“The limit is what the ECB is ready to do,” Mr Deo concluded.

Cheap liquidity

The central bank's operation was its most exceptional move since it acted in early August to stem the emerging credit crisis that was sparked by a meltdown of the US market for high-risk mortgages.

The amount was also nearly two times greater than the ECB's estimate of actual refinancing needs of €180.5 billion, the central bank said.

Mr Loynes noted that it came on the heels of joint central bank announcements last week, adding: “The ECB is rather enjoying trying to be sort of one step ahead of the other central banks.”

Last week, the ECB, along with the US, British, Canadian and Swiss central banks said they would provide more than 60 billion dollars to money markets over longer periods and under easier-than-usual conditions in a joint effort to get credit flowing again.

In Britain on Tuesday, the Bank of England offered 11.35 billion pounds (15.9 billion euros, 22.9 billion dollars) in its own refinancing operation, with the offer attracting only slightly more bids than was on offer.

Analysts suggested that meant demand might be easing and accordingly that money market rates should fall.

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