The central banks of the euro zone, Canada, Britain, Japan, United States and Switzerland, said in a joint statement they were lowering the cost of providing dollars to banks and making other currencies available, pushing stocks in Europe and the euro sharply higher.
The influential blue-chip Dow Jones Industrial Index closed 4% higher and markets in the Asia-Pacific region responded well, Craigs Investment Partner broker Chris Timms said.
The Nasdaq rose 3.4% and the S&P 500 was up 3.6%.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, tumbled to trade below 28 for the first time since early last month.
The central banks caught the markets by surprise with the announcement but the bigger surprise was that they took a concerted effort - joining together to face the continuing equity crisis, Mr Timms said.
"This is a continuation of what we have seen in recent months; you get the bad news one day and the good news the next, with the markets tipping back and forth in response."
The latest step, although positive, was just another step on what would be a long journey.
There needed to be a lot more steps like the one taken by the central banks, he said.
"There is no quick fix to this. By lowering the cost of borrowing, the central banks are trying to pre-empt any stress on those retail banks."
The main beneficiaries would be the countries struggling to pay their debts. In China, the amount banks were required to keep in reserve had been lowered, allowing that money to be lent out in a hope the economy would be stimulated, Mr Timms said.
The central banks said in their statement they were engaging in "co-ordinated actions to enhance their capacity to provide liquidity support to the global financial system".
"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," they added.
The arrangement allowed the central banks to lend dollars to commercial banks that might be finding it hard to borrow them directly from other banks, and is aimed at easing tensions in the crucial interbank lending market.
The banks said they were not only reducing the cost of this operation from December 5, but also extending it until February 1, 2013.
The banks also agreed to allow cash-swap arrangements in any of the participating countries' currencies if market conditions require them.
"At present, there is no need to offer liquidity in non-domestic currencies other than the US dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise," they said.
Such dollar operations were used to ease a credit crunch during the financial crisis of 2008-2009 and resumed in September in response to a dollar shortage among euro zone banks hit by the debt crisis.
AFP reported from Frankfurt that European stocks surged on the news, with the German equity market up more than 4%, Spain and Italy more than 3% and France over 4%.
The euro also spiked on the foreign exchange markets.
The New Zealand dollar jumped more than 2% on the news and the Australian currency rose US3c.
"There was a massive surge in risk appetite overnight" following the concerted central bank action, BNZ market strategist Mike Burrowes said. "While the reaction overnight was dramatic, this action will not be the panacea to the world's ills."
It was still a risk-on, risk-off environment. There would be another realisation from markets that it did not change anything and Europe's debt fears would continue, he said.
