Top bankers urged the Bank of England to be more generous and flexible to ease tensions in fragile money markets at a meeting on Thursday.

The central bank pumped an extra 5 billion pounds into money markets on Thursday, but banks, facing their toughest period for over a decade, believe it must do more to restore confidence in the financial system, according to bank industry sources.

The BoE said in a short statement after the meeting that it and the banks "agreed to continue their close dialogue with the objective of restoring more orderly market conditions."

Boosting banks' access to liquidity and limiting damage from rumour mongering topped the meeting of bank executives and officials, chaired by Bank of England Governor Mervyn King. Details of the talks were not disclosed.

After months of turmoil, the banking industry was shaken further on Wednesday by speculation that a bank faced liquidity problems. HBOS, the biggest UK mortgage provider, bore the brunt of the chatter and its shares plunged 17 percent.

HBOS slammed the rumours and authorities joined in with an unprecedented public reaction. The BoE said no bank was in trouble and the Financial Services Authority warned it will hunt out people spreading "unfounded rumours"..

By Thursday's close, HBOS had clawed back almost all of its loss, but investors remain jittery about UK banks.

The reaction by authorities showed they are more alert to worries than six months ago, when they were criticised for a tardy response to a crisis at Northern Rock, which has since been nationalised.

The BoE said the extra 5 billion pounds in weekly loans offered on Thursday will remain on offer until its next interest rate meeting next month. But that may not be enough.

"We have entered a substantially slower phase in the housing market and there will be ongoing problems in the mortgage funding markets unless the Bank of England makes new, broader based attempts to improve levels of liquidity in the UK," said Michael Coogan, director general of the Council of Mortgage Lenders. The CML said mortgage lending slumped 6 percent in February from a year ago.

Banks agree more needs to be done.

They called on the BoE to follow the European Central Bank in offering to provide as much liquidity as necessary during the turmoil, and to be more flexible and responsive with its money operations, according to bank industry sources.

Language linked to the use of "emergency" facilities means there remains a stigma attached to accessing some funds, and banks should be allowed to use more collateral for borrowings and the duration of loans should be extended, they said.

The U.S. Federal Reserve and ECB have been quicker to respond to a deepening credit crisis, they said. The Fed aided a bail-out of investment bank Bear Stearns last weekend, making it clear its primary concern was maintaining stability, rather than controlling inflation.

The ECB has aggressively added extra liquidity, including an extra 15 billion euros to tide euro zone banks over the Easter holiday period..

Northern Rock, Britain's highest profile casualty of the credit crunch that began in August, was hit by a shortage of liquidity after speculation about problems caused banks to stop lending to it.

BIG 5 MEETING

Chief executives or senior directors from the "Big 5" banks - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS - met King and BoE officials for a "regular exchange of views".

The meeting was only called last week, however, and little in banking at present can be considered routine.

A sharp cut in U.S. interest rates this week and other measures to help liquidity have provided only temporary comfort.

At an offer for an extra 5 billion pounds on Monday, UK banks subscribed for 23 billion pounds.

The interbank cost of borrowing three-month sterling hit a fresh high for the year of 5.9875 percent on Thursday, its 10th straight rise, as worries about counterparty risks have left banks wary about lending to one another.

That has helped fuel the increased speculation about banks potentially in trouble.

Authorities are concerned that speculators can benefit from wild gyrations in share prices and spreading false information.

Worries about wild speculation is not limited to Britain.

Ireland's regulator said it was concerned about "false rumours" affecting Irish shares; Germany voiced concern about "hysteria" heightening the market turmoil; and U.S. regulators are reported to be probing activity around Bear Stearns before its collapse.