MARKET, ECONOMIC STRESS

The central bank has now cut rates by an aggressive 3 percentage points since mid-September, including 2 points since the start of the year. In addition, it has vowed in recent days to provide around $400 billion worth of liquidity to thaw frozen credit markets.

   "Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters," the central bank said. "Downside risks to growth remain."

   A Reuters poll of 16 big Wall Street firms that deal directly with the Fed in the markets found that 10 expect the central bank to lower rates by a further half-point at its next meeting on April 29-30. The other six see a quarter-point cut.

   The rate action came two days after the central bank announced up to $30 billion in financing to facilitate the sale of cash-strapped investment bank Bear Stearns, an unusual intervention bank officials said was necessary to prevent cascading defaults from damaging the entire financial system.

   Concerns other financial institutions may also be running into severe trouble from mortgage-related losses were eased by the earnings reports from Goldman Sachs and Lehman, and both companies saw their stocks post record one-day gains.

    Goldman, the largest Wall Street bank by market value, said its first-quarter earnings fell by half on steep losses on corporate loans and other assets. Still, the results exceeded the gloomy expectations of analysts.

   Lehman, whose shares have been pummeled in recent days on worry it was the most vulnerable to troubled mortgages and leveraged loans next to Bear Stearns, suffered a sharp fall in bond trading revenue but benefited from a strong merger advisory performance.

   While the Fed made clear it was most worried about deteriorating economic and financial conditions, it said it would also be keeping a wary eye on prices and expressed some nervousness that inflation might not decline as expected.

   Those concerns appeared to weigh heaviest on Philadelphia Federal Reserve Bank President Charles Plosser and Dallas Fed chief Richard Fisher who argued for less-aggressive rate action and voted against the move -- the first double dissent since September 2002.