A bus passenger looks on as the bus passes by the London Stock Exchange, in central London on September 22, 2011.

Story highlights

European rally stalls in early trading

Central bank action averts liquidity crisis

China also moves to ease monetary policy

Asian markets rise sharply in early trading

CNN  — 

European stocks were unable to maintain the strong rally from the previous session on Thursday, stalling in early trading as sentiment returned to caution.

London’s FTSE remained little moved at the open, edging down to 0.18% in early trade. Germany’s DAX was down 1.04% and France’s CAC 40 was off 0.62%.

Central bank action on the mounting eurozone crisis had earlier boosted stock markets around the world, with Asian indices rising sharply in morning trading following strong gains in Europe and the United States.

In a coordinated move with other central banks, the U.S. Federal Reserve cut the penalty rate it charges on liquidity from 100 to 50 basis points, averting a liquidity crisis and boosting financial markets.

China also made a decisive move towards easier monetary policy, cutting the proportion of deposits that banks must hold in reserve with the central bank.

Markets across the region responded positively. Japan’s the Nikkei closed up 1.93%, South Korea’s Kospi gained 3.7% and the best performer in the region was the Hang Seng, which surged 5.6%.

Earlier Wednesday, Wall Street’s Dow Jones index saw its biggest again since March 2009, rising 4.2%. In Europe, Germany’s Dax index closed 5% higher, while France’s Cac 40 climbed 3.2%. The UK’s FTSE 100 rose 3%.

The move by China was closely watched in Asia where growing concerns about the slowdown in the world’s second-largest economy prompted policymakers – who were not expected to begin loosening until next year – to act sooner than expected.

“We see this as a decisive shift in policy stance from China,” wrote Mark Williams, chief Asia economist for Capital Economics in London, in a report for investors. “Further reserve requirement cuts will follow over the next few months. Bank lending will pick up.”

The decision also indicated that Beijing believes it has beaten stubbornly high inflation. The headline figure peaked at an annualized 6.5% in July but is thought to have fallen well below 5% in November.

China’s quarterly gross domestic product data have shown only modest deceleration, from 9.5% annual growth in the second quarter to 9.1% in the third.

Despite this, analysts fear that cracks could begin to appear over the next couple of quarters, with some predicting GDP growth to drop to 7.7% year-on-year in the first quarter and just 6% quarter on quarter.

If the figures fall as low as expected, it will be the lowest level since the fourth quarter of 2008.

Proxy indicators such as seaport cargo volumes, domestic freight volumes, electricity output, passenger trips and housing construction have all cooled off following high rates of growth earlier in the year.

The falls have been most noticeable in electricity output growth, in manufacturing activity and in passenger trips – regarded as a strong indicator of business travel and discretionary household spending.