Fed's new rate cut fails to calm fears

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The Federal Reserve last night cut its discount rate - the rate at which it lends to banks - from 3.5% to 3.25% but failed to allay fears the credit crunch could claim more high-profile victims. It was its first weekend emergency action in almost three decades.

The US central bank meets again tomorrow, when it is expected to lower the benchmark Federal funds rate by up to a percentage point.

It has already slashed rates from 5.25% to 3% in recent months, and experts reckon it will keep going until rates are just 1%. It is also continuing to pump funds into the money markets.

President Bush has unveiled a $168 billion (£83.4 billion) package of tax cuts and increased spending in what seems an increasingly hopeless bid to stave off recession.

The British Government and the Bank of England have less ammunition to support UK growth. Crumbling public finances mean that the Treasury has little room for tax cuts or increased spending, and the Bank fears rate cuts will fuel inflation.