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Fed leaves rate unchanged

Washington The U.S. Federal Reserve Board held its key benchmark U.S. interest rate steady Tuesday, opting for the time being to soothe rattled financial markets with central bank lending facilities rather than rate cuts.

The U.S. central bank's decision leaves the interbank overnight federal funds rate at 2 per cent, where it has been since April.

Until recently, financial markets had expected the Fed to hold fire. However, interest rate futures markets had shifted to price in a quarter-point rate reduction in the wake of the bankruptcy of 158-year-old Lehman Brothers Holdings Inc., the sale of investment bank Merrill Lynch to Bank of America, and a scramble for cash by insurer American International Group Inc.

The swift-moving events have rattled global financial markets and threaten to exacerbate a credit crunch that has already helped push the U.S. economy toward recession.

On Sunday, the Fed said it would accept a wider range of collateral, including equities, from investment banks seeking central bank loans in an effort to help keep markets functioning.

More to come

The Globe and Mail