NETCENTRIC

Fed Cuts Key Rates in Surprise Move
By Knut Engelmann

WASHINGTON (Reuters) - The Federal Reserve on Wednesday cut a key short-term interest rate by a half percentage point and signaled it was prepared to cut borrowing costs further if needed to prevent the world's top economy from turning sour, electrifying global financial markets.

The shock move, which came four weeks ahead of the year's first scheduled meeting of the rate-setting Federal Open Market Committee, takes the crucial fed funds overnight bank lending rate to 6 percent. The cut, decided in a conference call among FOMC members, was the first half-percentage point easing in that rate since mid-1992.

To underline its determination to keep the economy from hitting a brick wall, the Fed also said its Board of Governors had decided to cut the more symbolic discount rate on Fed loans to banks by a quarter percentage point to 5.75 percent.

The powerful central bank added that it was prepared to cut that rate further to 5.5 percent if necessary.

Financial markets surged within seconds of the Fed announcement, and advisers to U.S. President-elect George W. Bush -- who has expressed mounting concern over an economic slowdown as he prepares to take over the presidency Jan. 20 -- welcomed the decision as a much-needed dose of Viagra.

It was the first time the Fed cut rates between regular FOMC meetings since the autumn of 1998, when a global economic crisis threatened to seize up world financial markets.

Shortly after the Fed's announcement, the Dow Jones industrial average was up more than 3 percent, while the technology-heavy Nasdaq composite index surged more than 11 percent. Both indices later gave back some of their gains.

The U.S. dollar rose against major currencies.