The Swiss National Bank has joined other central banks across Europe in slashing interest rates in a collective effort to raise confidence in the financial markets.

A key target rate for the Swiss franc was lowered by a quarter of a percentage point for the first time in five years, the bank announced on Wednesday.

The bank said it was lowering its target rate for the three-month Swiss franc Libor – a rate set by the markets at which banks lend to each other - by a quarter to two to three per cent as it considers the Libor to be a more relevant rate for the real economy.

The Swiss Market Index of the 20 leading companies reacted with a 1.58 per cent increase after the announcement but closed down 5.51 per cent at 6073.45 points.

The US Federal Reserve, the European Central Bank (ECB) and central banks in Britain, China, Canada and Sweden also cut rates.

The Federal Reserve reduced its key rate from two per cent to 1.5 per cent, saying it was joining collective action with central banks abroad. The Bank of England cut its base lending rate by half a point to 4.5 per cent, while the ECB also cut its rate by half a point to 3.75 per cent.

The moves follow further drops in markets in Asia and Europe on Wednesday amid global fears of a recession.

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