0.25 percent raised expectations the Bank of Japan and other central banks will follow with their own moves to support the stumbling global economy.
Asian markets rallied on news of the larger-than-expected cut from 1 percent, which virtually exhausts the traditional Fed tools to battle the year-long recession. Asian stocks took cues from Wall Street, where shares closed up 5 percent on Tuesday.
The Fed said it would employ "all available tools," echoing a policy pursued by Japan earlier this decade when it flooded banks with money to promote lending.
Its move could push the Bank of Japan (BOJ) to cut interest rates to almost zero from 0.3 percent when it meets on Thursday and Friday and possibly follow the Fed into buying commercial paper outright or purchasing asset-backed securities, reviving a scheme it put in place five years ago during the bank crisis.
Other central banks could follow, analysts said.
"I think it's more and more likely that key rates in Asia are going to converge at a level much lower than previously forecast," said Glenn Maguire, Asia chief economist with Societe Generale in Hong Kong.
"We will see an ultra-low interest rate policy across Asia and central banks on a case by case basis will target liquidity in the banking system where needed."
Hong Kong, which pegs its currency to the U.S. dollar, cut its discount window base rate by 100 basis points on Wednesday.
STRONG YEN PRESSURES EXPORTERS
U.S. Treasury debt rallied sharply after what Japan's top financial diplomat Naoyuki Shinohara called the Fed's "bold" move, pushing the benchmark note's yield down to five-decade lows.
Japanese government bonds surged on Wednesday, with the two-year yield hitting its lowest level in nearly three years on expectations for a BOJ rate cut.
The dollar plumbed 13-year lows against the yen and 2- month lows versus the euro on Wednesday, extending a slide on Tuesday.
The strong yen has put additional pressure on Japanese exporters, who are already facing a slump in overseas demand. This includes Honda Motor Co Ltd, whose shares slid nearly 8 percent on expectations it will announce a profit warning later on Wednesday.
Adding pressure on the BOJ, Japan's top government spokesman said that he hoped that the BOJ would consider the impact of the strong yen -- at a 13-year high against the dollar -- when considering monetary policy.
"The abnormal rise in the yen could affect export industries and I hope that the BOJ will make a comprehensive consideration, including those factors to decide its monetary policy," Chief Cabinet Secretary Takeo Kawamura told a news conference.
Yet Japanese Finance Minister Shoichi Nakagawa said he was not considering intervention in currency markets for now and that the yen's recent gains were not bad, the Nikkei newspaper reported on its website.
He later told reporters that the government would take all necessary steps to support the economy, including steps to deal with rapid foreign exchange moves.
The extent of the global turmoil was all too apparent in corporate results.
Wall Street titan Goldman Sachs Group Inc posted its first quarterly loss since going public nine years ago, though the fourth-quarter net loss of $2.12 billion was less than the market feared, prompting Goldman shares to shoot up more than 16 percent.
AUTO BAILOUT, OPEC IN FOCUS
As the impact of the sagging U.S. auto industry spread around the world, investors hoped to see the Bush administration approve loans for carmakers with funds from the bank rescue.
"The automakers will get the money as quickly as we can prudently do it," U.S. Treasury Secretary Henry Paulson said in an interview on CNBC television. "We need to do this but we need to do it right."
Investors will also be looking on Wednesday to an OPEC meeting in Algeria, where major oil producers are expected to announce the biggest oil supply cut ever to address the first drop in world oil demand in 25 years.
Oil prices have plunged $100 from their all-time high in July because of slumping demand. Prices rose over 1.5 percent on Wednesday above $44 per barrel, after falling more than 3 percent the previous day.
Despite a continuous flow of negative economic news, the U.S. Treasury's point man on international economic affairs said the risks of a global collapse were easing.
"While the outlook for 2009 is exceptionally challenging, the coordinated actions of U.S. policy-makers and many of their international counterparts have decreased the chances of systemic collapse that appeared all-too-possible several months ago," said David McCormick, Treasury's undersecretary for international affairs.
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