LONDON Euphoria over coordinated moves by leading central banks to fix the global credit crisis wore off quickly on Thursday with investors sending stocks sharply lower and shuffling money into safer assets.
Indicative euro, dollar and sterling money market rates -- rough guides to the state of bank borrowing -- were either flat or higher, also suggesting the calming effect of Wednesday's bank moves may have been short-lived.
"A dose of realism has kicked back in, the moves to coordinate monetary policy were good but people doubt if this is going to stop bad news coming out of banks," said Jeremy Stretch, strategist at Rabobank.
The Federal Reserve, European Central Bank and the Swiss, Canadian and British central banks acted in unison to improve liquidity in the financial system, where interbank lending has all-but frozen since the U.S. subprime crisis hit.
The Fed's actions included the setting up of a temporary term auction facility for banks and foreign exchange swap lines with the European and Swiss banks.
Investor relief, however, was shaken again when three major U.S. banks -- Bank of America (BAC.N), Wachovia Corp WB.N and PNC Financial Services Group (PNC.N) -- warned of fourth-quarter write-downs and losses.
MSCI's main world index .MIWD00000PUS was off 0.7 percent and its emerging market counterpart .MSCIEF lost 1.4 percent. European shares opened sharply lower with the pan-European FTSEurofirst 300 index .FTEU3 down 1.2 percent.
"People are concerned that this might be a very nice short-term easing but is it going to restore trust and confidence?" said Stephen Pope, head of equity research at Cantor Fitzgerald.
On currency markets, the tone was similar, with Wednesday's central bank-led gains withering.
The yen recovered from one month lows versus the dollar and euro in a sign of investor wariness about risk.
The dollar fell 0.6 percent to 111.61 yen retreating from a one-month high of 112.46 yen hit on Wednesday according to Reuters data.
The euro fell half a percent to 164.16 yen, it was steady against the dollar at $1.4705.
High-yielding Australian and New Zealand dollars retreated a little after climbing more than 1 percent on Wednesday after the move from the Fed and others.
Bunds rose, recouping some of Wednesday's losses as the initial impact of the coordinated central bank measures faded.
The March Bund future was at 113.35, up 25 ticks from the previous day's settlement close, having traded as high as 113.40. It fell two thirds of a point on Wednesday.
Yields on 10-year paper were down at 4.30 percent, while the two-year cash yield was 4.0 percent.
(Editing by Mike Peacock)