Market Crisis

The European Central Bank (ECB) said Wednesday it plans to auction 40 million euros ($54 billion) worth of supplementary three-month funds in order to enhance the liquidity of cash-hungry markets.

"The operation is a technical measure aimed at supporting the normalization of the functioning of the euro money market," said the ECB Wednesday in a statement.

Scheduled for Thursday, the tender would not interfere with the bank's regular three-month bid of 50 million euros.

The bank also said that it would likely raise interest rates by 25-basis points on Sept. 6, bringing them to 4.25 percent in the 13-member eurozone.

ECB President Jean-Claude Trichet said earlier this month that the bank is maintaining "strong vigilance" toward inflation, a statement the bank reaffirmed on Wednesday.

Opposition to rate increase

The recent crisis in the US home-loan sector had sparked calls for the ECB to reconsider an interest rate hike. France's Finance Minister Christine Lagarde said Wednesday on BBC television that she favored a drop in interest rates.

In response to the US market turmoil, the ECB, the European Union's central financial institution, has already pumped over 200 million euros into the market to maintain liquidity.

After weeks of concern, the market situation relaxed a bit on Wednesday as the DAX climbed over one percent. The stock market had been sluggish over the past weeks as investors expected the ECB to call off the interest rate increase.

"Need to remain cautious"

"In light of the current confidence crisis and credit pinch it could take time" for the situation to stabilize, despite Wednesday's improvement, Deutsche Bank's chief strategist Klaus Martini told German daily Tagesspiegel.

Jean-Claude Juncker, chairman of the Eurogroup of euro-zone finance ministers, told news agency AFP that the situation "is normalizing, but we need to remain cautious."

"For the moment, I don't see a notable risk of impact on growth in the real economy," added Juncker.