Central banks cut rates to stem financial crisis

The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in the coordinated response which analysts had been demanding.

‘Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months,’ the Fed said in a statement.

‘Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.’

World stock markets cut heavy losses after the move.

The dollar fell further versus major currencies and US Treasuries rose. German government bond futures wiped out gains, while European bank shares turned positive.

‘At last they all woke up!’ Bank of America rates strategist Riccardo Barbieri-Hermitte said.

Britain had earlier offered to pump at least 50 billion pounds ($87.2 billion) into its biggest retail banks to help them survive the crisis.

British Prime Minister Gordon Brown said the global financial market had ceased to function after bad debts stemming from a collapse in the US housing market poisoned the system.

Hong Kong had earlier followed Australia's lead in slicing a full point off its interest rates amid increasingly strident calls for a coordinated, global monetary policy response.

The US approved a $700 billion package last week to rescue its ailing banks -- although its stock market has continued to plunge -- and governments across the globe are now pushing ahead with their own emergency measures.