Fed move doesn't herald coordinated rate cuts

LONDON (Reuters) - Top central banks worked hand in glove to get jammed money markets flowing again, but show no signs of the same teamwork to coordinate a round of global interest rate cuts.

The U.S. Federal Reserve was forced to cut its main lending rate 75 basis points on Tuesday, a week before its scheduled meeting, to shore up confidence and bring itself more in line with where financial markets thought interest rates should be.

The surprise action came after stocks around the globe had tumbled in the last two days as panic and fear over a looming U.S. recession prompted widespread selling whether in Tokyo, Mumbai or London and a feeling that central banks were flailing.

"There was a sense the Fed was behind the curve and they have taken action to address this," said Russell Jones, chief strategist at RBC Capital Markets. "In that sense, it is an admission of defeat, or rather misjudgment."

The Bank of Canada quickly followed the Fed with an expected interest rate cut but the reduction was only a quarter-point, not the 50 basis points that some investors had hoped for.

But other central banks are unlikely to follow suit straight away, creating a disconnect between market perception of economic needs and what the authorities are ready to give.

"Neither the ECB nor the Bank of Japan look ready to change tack," said Jones.

NOT FOR TURNING

The ECB has so far stood firm, keeping its benchmark refinancing rate steady at the last meeting on January 10 and warning it would not hesitate to raise rates if needed to head off a wage-price spiral.

BoJ Governor Toshihiko Fukui was also not for turning on Tuesday, saying that a favorable growth outlook trumped daily market mayhem when setting policy after the central bank left rates unchanged at 0.5 percent.

"There's so much difference in views between the BOJ and markets over the risks of a slowdown to the global economy and recession," said Takehiro Sato, Morgan Stanley chief economist in Tokyo.

In London, the Bank of England quickly pointed out that it had no plans to bring forward its next Monetary Policy Committee meeting, scheduled for February 6-7.

Expectations are high that it will cut interest rates by another quarter-point then after it disappointed many by holding rates at 5.5 percent this month.

But concerns about inflation mean the central bank is not about to validate expectations of as many as four interest rate cuts this year.

"They are going to resist as much as they can," said Bernard Connolly, chief global strategist at Banque AIG, pointing out there would be a temptation for the BoE to want to see the economy rebalance on its own as the housing market slows, consumption brakes and sterling declines.

The Swiss National Bank, meanwhile, looks as if it still wants more evidence before cutting rates.

"We will have our policy assessment in March," SNB board member Thomas Jordan told Swiss television channel SF1 on Monday night. "At the moment there is no reason to change current monetary policy."

Holger Schmieding, chief European economist at the Bank of America said he did not expect the ECB or the SNB to move in 2008: "The probability has increased significantly but we are not there yet."

The rhetoric may soon have to change everywhere though. The Fed action on Tuesday highlighted just how fragile sentiment had become. Some analysts said that without a move, stock prices could have declined another 20 percent.

If confidence doesn't come back, central banks may soon have no choice.

"It's going to have to happen whether central bankers like it or not," said Banque AIG's Connolly

(additional reporting by Sven Egenter in Zurich, Leika Kihara in Tokyo and Krista Hughes in Frankfurt; editing by Tony Austin)