Mumbai: The US Federal Reserve today announced a 50 basis point reduction in its key lending rate from 2.0 per cent to 1.5 per cent, in a coordinated action with other central banks in a bid to stem the worsening financial crisis.

The board of governors also unanimously approved a 50-basis-point reduction in the discount rate to 1-3/4 per cent. 

The European Central Bank (ECB), Sveriges Riksbank and the Swiss National Bank also announced reductions in policy interest rates. The central banks in Britain and Canada also are expected to cut rates in the coordinated response.

The Bank of China also said it will cut its base one-year lending rate by 27 basis points - from 7.20 per cent to 6.93 per cent. It also announced plans to cut deposit rates by an equal amount.

The Bank of Japan expressed its strong support of these policy actions.

''The committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures,'' a Fed release said. 

''Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. 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,'' the release said, adding, ''Inflation has been high, but the committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.''  

The Fed said it will monitor economic and financial developments carefully and act as needed to promote sustainable economic growth and price stability. 

''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,'' the Fed release pointed out.

''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,'' the release said.

Stock markets across the world cut heavy losses after the move. But the dollar fell further against major currencies and US government bonds rose. German government bond futures wiped out gains, while European bank shares turned positive.

Britain had earlier offered to pump at least 50 billion pounds ($87.2 billion) into its biggest retail banks on the lines of the $700 billion bailout planned for US banks.