World's central banks cut rates, stocks recover

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.

U.S. stock index futures leapt on the news and world stock markets trimmed their losses.

Before the rate cut, stock markets across the world had continued their downward spiral amid the worst financial crisis in nearly 80 years and fears of a global recession.

"The fact that we have got them coming across the board suggests that this is the end game," said Peter Dixon, an economist at Commerzbank in London. "Will it help the markets? Questionable in the short term."

The cuts followed days of calls for concerted action by economists and world leaders after repeated attempts by central banks to inject liquidity into world markets failed to halt a crisis of confidence.

"The central banks of the world have finally woke up to the gravity of the current situation," said Charles Diebel, the head of interest rates strategy at Nomura. "This is a major step to convincing the world that they are serious about stabilizing."

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 U.S. 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 Bank of Japan, which did not join the world's central banks' coordinated rate cuts, said it will study ways to improve its market operations to enhance stability of financial markets.

The U.S. 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.

Iceland suffers, Toyota too

The crisis has caused turmoil in once flourishing economies.

Facing financial meltdown, Iceland has taken over two of its largest banks -- Landsbanki and Glitnir -- and is seeking a 4 billion euros ($5.4 billion) loan from Russia.

In the latest sign of gloom, corporate bankruptcies in Japan jumped 34.5 percent year-on-year, a research firm said.

A company source said carmaker Toyota Motor Corp may cut its annual profit outlook on sluggish global demand and a weaker yen.

U.S. presidential candidates John McCain and Barack Obama sparred over taxes and the economy on Tuesday in Tennessee in a head-to-head debate ahead of the Nov. 4 election.

"Americans are angry, they're upset and they're a little fearful," said McCain, a Republican senator from Arizona. "We don't have trust and confidence in our institutions."

Obama, a Democrat senator from Illinois, said the financial crisis was aided by financial deregulation supported by McCain and Republicans. He said middle-class workers, not just Wall Street, needed a rescue package that would include tax cuts.

"We are in the worst financial crisis since the Great Depression, and a lot of you I think are worried about your jobs, your pensions, your retirement accounts," Obama said.

Text of joint bank statement after coordinated rate cut

LONDON - Here is the text of a joint statement made by the Bank of England, the Bank of Canada, the European Central Bank, the US Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the Bank of Japan, released by the Bank of England:

"Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

"Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices.

"Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

"Some easing of global monetary conditions is therefore warranted. "Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates.

"The Bank of Japan expresses its strong support of these policy actions."