The Fed is worried that the fallout from the financial markets turmoil may broaden to domestic economy and damage the health of global economy. Libor rate, the rate charged by banks to each other for borrowing, has increased in the last two months to 5.59%. The Fed has been monitoring the rate rise and has been worried that the rate rise in Libor will affect most borrowers. Most consumer and business loans are tied to the Libor interest rate.

Market rejoiced in the Fed’s move and the Dow Jones index quickly shot up more than 200 points after the rate cut. Investors have been asking the Fed to lower rates before the economy slowed and did not want the Fed to wait for more confirmation in the economic data. The latest monthly jobs report showed first decline in jobs in August and retail sales and industrial production have been reported at below estimates of the most economists. The Fed in apparent attempt to keep economy chugging may have harmed dollar for months to come. While stock markets are trading higher on the news today, the reality may sink in the days to come. Lower rates are not likely to correct housing market excesses of the last five years. If anything, lower rates will only encourage more reckless lending. The value of dollar may be sacrificed to keep economy growing at all costs.

The lower interest rates will drag dollar lower against euro and yen in the days to come. While lower dollar will help manufacturing export but will fuel inflation as prices of imported goods rise.

Today’s rate cut may haunt the Fed in months to come if inflation rears its ugly head. Several economists have suggested that the Fed should not bow to the pressure from the Wall Street and those who took excessive risk in credit market should not look to central bank for a possible bailout. The current move by the Fed may be seen as bailout in international currency market that stock and bond investors have been hoping for months.

1:00PM New York, 6:00PM London - The UK stocks leapt as bank's shares rebound. UK leading mortgage lenders shares led the gainers. The inflation in UK beat the forecasts.

London stocks reversed earlier losses climbing 1.63% or 100.5 to 6,283.3 as confidence starts crippling in following government announcement that it will take full responsibility of deposits in the banks. It was red arrows on London stocks as stocks fell spurred by panic withdraws by Northern Rock depositors. Savings worth 2.2 billion pounds had been withdrawn by the close of Monday. Of the 102, FTSE 86 stocks gained, 12 declined and 4 were unchanged.

In London trading FTSE 100 surged 1.63% or 100.5 to 6,283.3 spurred by gains recorded by the banks. Banks gained after the announcement by UK government that it will take full responsibility of deposits.

The Office of the National Statistics reported that consumer price index increased 1.8% in August from a year ago compared to 1.9 % in July. Economists had projected the rate to remain unchanged.

Inflation has slowed from a decade-high of 3.1 % in March. Prices rose 0.4 percent compared to July. The Bank of England had projected that the August inflation rate may come in at below the target rate. The new inflation rate may cause the BoE to lower its interest rate forecast.

Exchequer Chancellor Alistair Darling revealed Tuesday that the forthcoming IMF meeting would among other issues focus on global financial regulations to enhance transparency in the global financial markets. Earlier yesterday, Darling had held talks with the U.S. Treasury secretary over the current turbulence in the world financial markets. Darling said their talks were centered on devising new measures for regulating international markets.

Paulson, however noted the need to review the global market laws but highlighted the necessity for a carefully approach as stiff regulations could turn out to be disastrous. Chancellor Darling also pointed out that the ongoing upheavals in the world financial market arising from the U.S subprime mortgage market problems was affecting the entire world.

Of the FTSE 100 index heavy looser tops the gainers. The troubled Northern Rock gained 8.22%, Liberty plc rose 5.06% Barclays plc gained 4.48%, while Antofagasta put up 4.46%.

Standard Charted, Royal Scotland, Land Securities, Barratt Development, Lloyds TSB all recovered from Monday losses with their stocks surging 4.15%, 3.44%, 2.79%, 1.56% and 1.27% respectively.

Of the FTSE 100 index stocks, Lonmin shed 3.62%, Marks and Spencer closed weaker at 0.70% Mitchells slid 0.68%, Persimmon declined 0.53%, while Sage eased 0.50%.

11:00AM New York – 11:00PM Sydney - Australian stocks fell again on the back of renewed concerns over the subprime mortgage crisis and its effects on credit market. The Aussie dollar continued to slide. Australia lowers estimate for barley, wheat and canola crops harvest.

In Sydney trading ASX 200 Index fell 1.26% or 78.9 to 6,192.50. Australian stocks fell, as the subprime mortgage crisis was revived by withdrawals from British Bank Northern Rock Plc.

Newcrest Mining Ltd. jumped after gold prices rose to a 16- month high on speculation the credit crisis will spur central banks to reduce interest rates and boost demand for precious metals as an alternative investment to currencies. There were concerns that the cost of credit will keep rising. Interest rate for overnight loans in pounds that banks charge to each other, known as Libor, has been rising since June month, which prompted UK mortgage lender, Northern Rock to seek emergency funding to finance its customer's withdrawals of their savings.

The Australian dollar dropped 1% to A$0.8311 against the American dollar from A$0.8393 in yesterday’s trading. The fall, the most this month, was prompted by withdrawals from British mortgage lender Northern Rock Plc caused global stocks to slump, spurring traders to sell higher-yielding currencies.

The local dollars rated as the worst performers among the 16 most-actively traded currencies as investors reduced carry trades in which they bought the nations' securities after borrowing in Japanese yen.

Australian companies and consumers may face higher borrowing costs according to comments of the governor of the Reserve Bank of Australia. Reserve Bank of Australia policy makers were expected to craft a solution and indicate how they would react given that the domestic economy is showing few signs of slowing, while the world economic growth was likely to be weaker than they expected.

Australia also forecast a cut for barley, wheat and canola crops to 31 percent on dry weather, adding pressure to shrinking world supplies that have driven up prices.