By Michael Patterson Oct. 8 (Bloomberg) -- U.S. stock-index futures advanced and European shares pared losses after central banks in the U.S. and Europe unexpectedly slashed interest rates. Futures on the Standard & Poor's 500 Index added 2.6 percent, reversing an earlier drop of as much as 4.3 percent, as of 7:11 a.m. New York time. Europe's Dow Jones Stoxx 600 Index, which earlier tumbled as much as 7.8 percent, slipped 0.9 percent to 1,023.13. The Federal Reserve, European Central Bank and four other central banks lowered rates in an emergency coordinated bid to ease the economic effects of the financial crisis. The Fed cut its benchmark rate by a half point to 1.5 percent. The ECB and central banks of the U.K., Canada, Sweden and Switzerland are also reducing rates, the Fed said. Efforts by governments around the world to restore confidence in the banking system have failed to unlock credit markets and stem share declines that sent the MSCI World to the lowest level since August 2004 today. General Electric Co. and AT&T Inc. lost more than 4 percent yesterday and the S&P 500 fell below 1,000 for the first time since 2003 even as the Federal Reserve said it will buy short-term corporate loans. Japan's Nikkei-225 Stock Average fell 9.4 percent, the third-biggest decline on record, and Europe's Dow Jones Stoxx 600 Index lost as much as 7.8 percent even as U.K. Prime Minister Gordon Brown's government said today it will invest about 50 billion pounds ($87 billion) in an unprecedented step to prevent a collapse of the U.K. banking system. As part of the plan, the government will buy preference shares, and the Bank of England will make at least 200 billion pounds available for banks to borrow under the so-called special liquidity plan, the Treasury said in a statement. The government will also provide a guarantee of about 250 billion pounds to help refinance debt. The U.K.'s plan follows a $700 billion bank-rescue package in the U.S. that was signed into law by President George W. Bush last week. Bank stocks around the world have retreated over the past year after the collapse of the U.S. subprime-mortgage market spurred a retreat from high-risk debt and saddled global financial companies with more than $590 billion of credit losses and asset writedowns. The MSCI World Financials Index has dropped 49 percent since last October. The world's major banks may need $675 billion in fresh capital over the next several years to recover from the credit crisis, the International Monetary Fund said yesterday. The Washington-based lender raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion from $1.3 trillion two weeks ago. The IMF cut its forecast for global growth next year to 3 percent from an April prediction of 3.7 percent, according to the draft of its latest World Economic Outlook. ----With reporting by Sarah Thompson, Lukanyo Mnyanda, Gavin Finch, Kim-Mai Cutler and Charlotte Kan in London, Adria Cimino in Paris and Bo Nielsen in Copenhagen. Editors: Stephen Kirkland, Daniel Hauck. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.

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