Investors in London today gave a muted response to last night's dramatic cut in US interest rates as fears over the desperate state of the world economy played on their minds.

The FTSE 100 index was up 3.69 points at 4312.77, not nearly as much as the 4.2% rise of nearly 360 points to 8924.14 in late trading on Wall Street.

Stock markets across Europe and in Asia were also less enthusiastic than New York investors. "It looks like the last throw of the dice for the US," said one analyst in London.

The US Federal Reserve, led by Ben Bernanke, slashed rates from 1% to between zero and 0.25% as it took drastic steps to stop recession in the world's largest economy turning into depression.

It was the first time in 75 years it has ditched the target for its so-called federal funds rate in favour of a range.

The Fed also said it was looking into the possibility of buying up Treasury bonds in the new year as it put quantitative easing at the heart of its battle against recession rather than interest rates.

The move harked back to the zero-rate policies employed by Japan in the 1990s in its six-year battle against deflation.

However, despite the euphoric response on Wall Street last night, investors elsewhere remembered how long it took to solve the crisis in Tokyo.

Jimmy Yates, a dealer at CMC Markets in the City, said: "A wave of cheer swept across Wall Street last night as the Fed sought to impress, but the upside has already proved to be short lived in Asian markets and although European indices are currently higher, the question has to be asked as to just how long lived any rally will be here."

The dollar took a battering against currencies around the world. The pound was up 2.77 cents against the greenback to $1.5617 after weeks of weakness. The euro was up 2.9 cents to $1.408.

However, sterling continued its slide against the European single currency, down 0.18 of a cent to ¤1.1092. A euro was worth 90.16p with traders increasingly convinced the pound and euro will reach parity at some stage next year. The rate cut in the US piled pressure on the Bank of England to make further moves in the New Year as Britain plunges deeper into recession.

Charles Goodhart, a former member of the monetary policy committee at the Bank, said Governor Mervyn King should continue to be "aggressive" in tackling the credit crisis. The Bank has cut rates from 5% to 2% since October.

"The monetary authorities have got to be aggressive," said Goodhart, a professor at the London School of Economics. He said King should approach the situation with "courage, flexibility and perhaps going a bit too far with the very serious occasion we're in".

Manoj Ladwa of ETX Capital said: "There is some argument about how much good, if any, lowering rates will do apart from driving the stock markets higher. Will lower interest rates solve our economic problems? No way. Yes, higher rates would hurt the economy even more, but lower rates won't make the problems go away.

"It will take time, a lot of time, too much time for many people, to work through all the excesses of the credit bubble."