Sept. 16 (Bloomberg) -- The Bank of Japan added a total of 2.5 trillion yen ($24 billion) to the financial system and China cut interest rates as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy.

The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its benchmark rate for the first time in six years late yesterday and may act again.

Japanese bonds jumped, sending the yield on the benchmark 10-year bond to its biggest drop in five years on concern the credit crisis will worsen. Financial institutions worldwide have reported more than $510 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year.

``Central banks have to show they are ready to take action to ensure stability,'' said Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore. ``Precautionary steps are high on their list to prevent any significant impact and support their markets.''

The Bank of Japan added 2.5 trillion yen in two operations today. The overnight call loan rates traded at 0.54 percent at 2:10 p.m. in Tokyo after the second operation. It rose as high as 0.57 percent, according to Tokyo Tanshi Co. The central bank's target rate is 0.5 percent.

Today's increase in funds was the first since June 30 and the biggest since March 31, when the central bank added 3 trillion yen.

Australian Rates

Australian one-month money market rates dropped 3 basis points to 7.21 percent today, the first decline in five days, after the Reserve Bank of Australia injected A$1.848 billion ($1.5 billion) to the financial system, adding to yesterday's $2.1 billion.

The European Central Bank, the Bank of England and the Swiss central bank also added liquidity yesterday. Three-month money market rates in Europe dropped 4 basis points to 4.25 percent yesterday, the lowest level since Aug. 27.

Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed's target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001.

``The Bank of Japan will carefully monitor the recent developments among U.S. financial institutions and continue to try to secure smooth fund settlements and financial-market stability by implementing appropriate money-market operations,'' Governor Masaaki Shirakawa said. The central bank starts a two- day policy meeting in Tokyo today.

Bank of Korea

South Korea will provide liquidity ``through open-market operations,'' Vice Finance Minister Kim Dong Soo said before an emergency meeting today with his counterparts from the central bank and the financial regulator in Seoul.

The Bank of Korea said in a separate statement today it will provide foreign currency liquidity through the swap market when necessary to ``help calm market players.''

The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today. It lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.

``The authorities are afraid of a chain reaction and a further tightening of financial conditions, which would ultimately have a negative impact on the economy,'' said Tomoko Fujii, head of economics and strategy at Bank of America N.A. in Tokyo. ``They have no choice but to try to calm the markets.''

Taiwan's Stocks

Taiwan's government instructed its four major funds and state-owned banks to buy shares to help reverse the stock market's slump. The index, which fell as much as 5.4 percent today, was 4.5 percent lower at 1:05 p.m. in Taipei.

Fed policy makers will meet today to decide on its key interest rate. The central bank hasn't reduced rates since April 30, when it made the seventh cut since September 2007, bringing the target rate for overnight loans between banks to 2 percent.

Futures show traders boosted odds to 68 percent that the Fed will cut rates at the meeting.

``Cutting interest rates may not be the most appropriate way to solve the crisis,'' said Lam. ``It's better for them to continue or enlarge their liquidity and collateral program.''

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Last Updated: September 16, 2008 01:20 EDT