WASHINGTON - THE Federal Reserve, unwilling to bet that an economic recovery is taking hold, has dramatically boosted its arsenal against the crisis with a pledge to pump another US$1.15 trillion ($1.74 trillion) into the financial system.

Following is the full text of the statement by the US Federal Reserve on Wednesday announcing it was holding its base federal funds target rate at a record low between zero and 0.25 per cent: 'Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. ... more

This unprecedented step announced on Wednesday, while debated for months, nonetheless caught financial markets by surprise and boosted hopes that the world's biggest economy would emerge from its slump and avert a new Great Depression.

The announcement came at the end of the two-day meeting by the Federal Open Market Committee, which kept its base lending rate at a historically low range of zero to 0.25 per cent, where it has been since mid-December.

The Fed, which had been expected to keep its federal funds rate unchanged, said it 'anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.'

The panel said that since its last meeting in January, data 'indicates that the economy continues to contract' amid a deep recession that is gripping the entire world.The statement, echoing recent comments by Mr Ben Bernanke, suggested however that a recovery is in sight.

'Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilise financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth,' the statement said.

Ms Diane Swonk, chief economist at Mesirow Financial, said the Fed brought out its heavy artillery to counter the economic slump, and said it could have an impact by lowering rates for mortgages and other types of loans and 're-inflate the broader economy.'

'This marks a sharp departure from the Fed's behaviour during the Great Depression, and should help to prevent a repeat of the depth of pain felt during the 1930s,' Ms Swonk said.

The Fed managed to surprise financial markets at the conclusion of a two-day policy meeting, saying it would buy up to US$300 billion in long-term US Treasury bonds over the next six months 'to help improve conditions in private credit markets.'

The central bank also said it would boost purchases of mortgage-backed securities by US$750 billion to bring its total to US$1.25 trillion this year, and buy US$100 billion more in other federal agency debt, as part of a wide-ranging effort to revive the sagging US economy. -- AFP