The Federal Reserve voted to cut the fed funds rate by a half-percentage point to 4.75 percent. It was the first time the central bank had cut the fed funds rate since June 2003.

Most stock market participants were expecting a cut, with the disagreement about whether the cut would be 25 basis points, or a quarter-percentage point, or 50 basis points, or a half-percentage point. There are 100 basis points in one percentage point.

"This is a good first move that will give aggressive confidence and aggressive relief to the credit markets and the consumer," said Georges Yared, chief investment strategist at Yared Investment Research. "It's good that they didn't do this incrementally 25 points at a time."

The Fed also cut the discount rate for the second time in a little over the month, lowering the largely symbolic rate by a half-percentage point.

The fed funds rate has stood at 5.25 percent since June 2006, as the Fed has sought to balance inflationary pressure with the threat of an economic slowdown sparked by the housing market collapse.

But the recent rise in mortgage defaults and the tightening of credit have raised expectations on Wall Street that the central bank will have to cut interest rates so as to keep financial markets stable.

The decision Tuesday seemed to reassure investors that the central bank will do what it can to keep liquidity flowing and try to protect the economy from falling into a recession.

The accompanying statement said that although economic growth was moderate in the first half of the year, the tightening of credit conditions could intensify the housing correction and drag on growth going forward.

The bankers said the cut was intended to "help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

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