The Federal Reserve yesterday slashed interest rates by three quarters of one per cent.

The move by America's central bank takes its base rate to 2.25 per cent, a full three percentage points lower than Britain's.

Some analysts had predicted a larger cut as the Fed looks to revive the flagging US economy.

Stock markets have been on the slide this week and Bear Sterns, one of the country's oldest investment banks, was rescued from collapse by JP Morgan Chase.

There were dissenting voices on the Fed's board, with two members urging a more cautious half a per cent reduction.

Further cuts could though be on the way if the move does not free up credit and encourage consumers to get spending.

In the 1990s, Japanese interest rates reached zero per cent, and there are fears that the US could be heading in the same direction.

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