The US central bank, in a rare Sunday night announcement, cut a rate for direct loans to some financial institutions and created a special lending program for securities firms caught in a cash squeeze stemming from the subprime real estate crisis.

Despite the Fed actions stocks plunged across Asia and Europe Monday, oil and gold hit fresh highs and the dollar fell to a new bottom as investors sought a safe haven from the global credit crunch roiling the markets.

The US central bank announced it was cutting by a quarter-point to 3.25 per cent its primary credit rate, which is the rate offered at the Fed's discount window for loans to institutions 'in sound condition'.

The cut, announced as Asian financial markets were set to open, came after a week of market turmoil and was part of 'two initiatives designed to bolster market liquidity and promote orderly market functioning,' a Fed statement said.

The Fed said it would make liquidity available starting Monday to 'primary dealers', which include brokerages that were not previously eligible for direct loans from the central bank.

The Fed board also extended the maximum time of discount window loans to 90 days from 30 days.

The moves came just two days ahead of a regularly scheduled Fed meeting where the bank headed by chairman Ben Bernanke is widely expected to cut its base rate further in an effort to get credit flowing.

But the Fed has been forced into a series of extraordinary moves amid troubles in various parts of the financial system.

'The Fed obviously didn't think they could wait until Tuesday' to make the announcement,' said Mr Robert Brusca at FAO Economics.

'They obviously feared some type of run.'

Mr Brusca said one sign of panic was the deal announced in which JPMorgan Chase agreed to buy Bear Stearns for two dollars a share - a fraction of its worth just a week ago and a pittance compared to a year ago.

'This is not just Bear Stearns,' Mr Brusca said. 'People have to wonder about other securities firms. Bear Stearns was at 150 dollars a share a year ago and now it was sold for two dollars. You don't have to be an expert to know something is wrong.'

The Fed statement said the central bank had authorised the Federal Reserve Bank of New York 'to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets' starting Monday and to be in place for at least six months.

Financial firms would be able to borrow at the primary credit or discount rate, which was just reduced by the Fed.

The New York Fed said it would accept a wide range of collateral, including mortgage-backed securities in some cases, to help institutions stuck with securities that cannot be traded in a seized up financial system.

It was the frozen credit markets that put the squeeze last week on Wall Street financial giant Bear Stearns, which faced a cash crunch and had to get an emergency Fed loan through JPMorgan Chase.

Bear Stearns and many other firms are holding securities backed by subprime mortgages, which in many cases cannot be traded because of the meltdown in the US housing market and a growing wave of defaults.

Bear Stearns shares plunged 47 per cent on Friday, setting off fresh worries about the rest of the financial system.

While Bear Stearns officials said the liquidity troubles were the equivalent of a run on the bank, the Wall Street firm had been unable to tap a new credit line announced by the Fed and set to take effect March 27.

The Fed a week ago said it would offer credits to primary dealers though an auction system. The announcement Sunday will make such credits available immediately to banks and securities firms.

The Fed has already slashed its federal funds rate, the base rate for interbank lending, to 3.0 per cent from 5.25 per cent last September, in an effort to ease housing and credit market stress. But that has not been enough to avert worries about a breakdown in the system.

Ms Marie-Pierre Ripert at Ixis Corporate & Investment Bank said she expects another hefty cut in the fed funds rate, probably a full percentage point.

'Given the recent events in financial markets, we believe that the most likely scenario is a 100 basis-point rate cut tomorrow,' she said.

'We believe that the Fed won't take the risk to disappoint markets in the current environment.' -- AFP