US Federal Reserve cuts discount rate

Washington - The US central bank on Sunday cut its lending rate to banks by a quarter of a percentage point, in a dramatic bid to help financial institutions get cash and bolster an economy hit hard by defaults on home mortgages and a tightening credit market.

The Federal Reserve approved the move unanimously in an emergency weekend meeting, immediately decreasing the so-called discount rate from 3.5 per cent to 3.25 per cent.

It also announced the creation of a lending facility to make short-term loans to financial institutions.

The new lending organization will make loans beginning Monday and will last for at least six months.

The Fed said the decisions were "designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth."

"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve chairman Ben Bernanke said after the announcement, Bloomberg financial news reported.

The board's action came ahead of its next regularly scheduled meeting, on Tuesday, at which analysts expect a cut in its benchmark interest rate of up to 1 percentage point.

It also approved the sale of ailing investment bank Bear Stearns to bank JP Morgan Chase.

Deutsche Presse-Agentur