The rate cuts came against a backdrop of increasing anxiety in global financial markets. Investors have been fleeing shares on worries that neither the Fed, nor other central banks, could move fast enough to stop the rising turmoil.

European indexes fell. In Britain, the FTSE-100 fell 5.2 percent, Germany's DAX dropped 5.9 percent, and France's CAC-40 dropped 6.3 percent.

In Asia, Japan's Nikkei 225 closed 9.38 percent lower and Hong Kong's Hang Seng tumbled 8.17 percent hours before the rate cuts were announced; their declines showed the extent of the worldwide gloom.

The worldwide gloom follows a sell-off in U.S. markets late Tuesday, where major stock indexes slid 5 percent. The rout brought the Dow Jones industrials' losses to more than 875 points in two days, and its close was the lowest close in five years. The blue chip index is now around 33 percent below its record close of 14,164.53 a year ago.

The Fed's action Wednesday was the latest in a long series of moves over the last several weeks that the central bank has taken in coordination with other federal agencies, Congress and the White House to shore up a financial industry stung by bad loans, mounting losses and — in many cases — collapse. President Bush signed a $700 billion financial bailout bill into law on Friday.

The Fed's action reversed its current policy on interest rates, which had been to hold them steady out of concern that more cuts would fuel inflation. Since Fed Chairman Ben Bernanke and his colleagues put a stop to interest-rate cuts in June, economic and financial conditions have deteriorated significantly.

"The pace of economic activity has slowed markedly in recent months," the Fed said. "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."

Although inflation has been high, the Fed believes the recent drop in energy prices and the weaker prospects for economic activity have reduced this threat to the economy.

The orchestrated rate reductions had a mixed impact on stressed credit markets. Rates dipped on some commercial paper, a crucial short-term financing mechanism that many businesses rely on to bankroll day-to-day operations. The important "Libor" rate, which affects a vast array of loans, remained high, however.

The Fed also reduced its emergency lending rate to banks by half a percentage point to 1.75 percent. Given the intense credit crisis, banks have been ramping up their borrowing from the Fed's emergency "discount" window.

The fact that the Fed felt it couldn't wait until its regularly scheduled meeting on Oct. 28-29, underscored the urgency of the situation.