Australia had been expected to raise rates before recent jitters

Analysts in Australia had expected a rate rise before the end of the year in view of recent strong economic growth.

But fears that such a move could worsen recent financial turmoil prompted the central bank to freeze rates at 6.5%.

Canada followed suit, holding its rates at 4.5%, while the trend for greater caution is likely to see eurozone and UK rates stay on hold on Thursday.

A day before Australia's decision, it posted figures showing that its economy grew by 0.9% - more than expected - in the three months to June.

This took the annual rate of growth to 4.3%, its fastest pace in three years.

'Massive stresses'

The decision by the Reserve Bank of Australia (RBA) shows how central banks are reacting to recent problems in the credit markets that have caused concerns of a wider financial crisis.

Central banks around the world are pausing David Cohen, Action Economics

"There was no way in the world the Reserve Bank of Australia (RBA) was going to tighten today given the massive stresses in interbank markets," said Rory Robertson, at Macquarie Bank.

The recent turmoil has been triggered by a US housing slowdown, with a surge in defaults on loans given to borrowers with weak or nonexistent credit histories - known as the sub-prime sector.

As accessing credit has become harder, banks have in turn become loath to lend, contributing to market nerves.

Central banks worldwide have been stepping in by pumping cash into the banking system.

"Central banks around the world are pausing. Market players are trying to discern what all this financial turbulence means," said David Cohen, an economist at Action Economics.

Key decisions

Most analysts forecast that the European Central Bank will maintain its rate at 4% on Thursday while the Bank of England is predicted to keep interest rates at 5.75% - though many analysts say rates may well rise to 6% once the recent volatility abates.

Analysts now say there is a greater chance the US Federal Reserve will cut the benchmark interest rate from 5.25% at its next meeting, in view of recent market upheaval.

In a surprise move on 17 August, the US Federal Reserve reduced its primary discount rate, which is the rate at which it loans to banks, from 6.25% to 5.75%.