Fed cuts key rate to lowest level ever

WASHINGTON (AP) — The Federal Reserve has cut its target for a key interest rate to the lowest level on record and pledged to use "all available tools" to combat a severe financial crisis and prolonged recession.

The central bank on Tuesday said it had reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October. Many analysts had expected the Fed to make a smaller cut to 0.5 percent.

The Fed's aggressive move was greeted enthusiastically by Wall Street. The Dow Jones industrial average rose about 350 points in late-afternoon trading.

The Fed's action and statement

made clear that economic

conditions have worsened since its last meeting in October.

Federal Reserve Chairman Ben Bernanke and his colleagues said they will use unconventional methods to try to contain a financial crisis that is the worst since the 1930s. For example, the Fed last month said it planned to purchase up to $600 billion in direct debt and mortgagebacked securities issued by big financial players including Fannie Mae and Freddie Mac in an effort to boost the availability of mortgage loans.