The Federal Reserve acted to provide cash to financially squeezed Wall Street investment houses, an effort to prevent a spreading credit crisis from sinking the economy.

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WASHINGTON — The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.

The central bank approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms today.

“These steps will provide financial institutions with greater assurance of access to funds,” Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.

The Fed acted just after JP Morgan Chase agreed to buy rival Bear Stearns for $236.2 million in a deal that represents a stunning collapse for one of the world’s largest and most venerable investment banks.

The new lending facility — described as a cousin to the Fed’s emergency lending “discount window” for banks — is geared to give investment houses a source of short-term cash on a regular basis if they need it.

It will be in place for at least six months and “may be extended as conditions warrant,” the Fed said. The interest rate will be 3.25 percent, and a range of collateral — including investment-grade mortgage-backed securities — will be accepted to back the overnight loans.

Treasury Secretary Henry Paulson said he was pleased by Sunday’s developments.

“Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets,” he said.

Paulson’s remarks were echoed by White House press secretary Dana Perino, who said President Bush had been briefed on recent developments.

The “discount” rate cut announced Sunday covers only short-term loans that financial institutions get directly from the Federal Reserve. It doesn’t apply to individual borrowers.

The Fed’s actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street. The action comes just two days before the central bank’s scheduled meeting Tuesday, where it’s expected to order another big cut to a key interest rate that affects millions of people and businesses.

“It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown,” Richard Yamarone, an economist at Argus Research, said Sunday evening.

Asian stocks plunged early today after the JPMorgan and Fed announcements. Markets in Australia and New Zealand also fell.

The Fed said in a statement that the steps are “designed to bolster market liquidity and promote orderly market functioning … essential for the promotion of economic growth.”

Even with the Fed’s aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first-quarter economic activity will be released in late April.

The housing collapse and credit crisis have dealt a one-two punch to the economy. Financial institutions have racked up multibillion-dollar losses when mortgage-backed investments soured. Foreclosures have hit record highs as distressed borrowers couldn’t make their monthly payments. It has become a vicious cycle.

The Fed this past week said it would pour as much as $200 billion into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral to borrow for much-in-demand Treasury securities. This maneuver was intended to bring sorely needed relief in the market for mortgage securities. The Fed also has offered as much as $200 billion in short-term loans to banks and large financial institutions.

Associated Press writers Joe Bel Bruno and Madlen Read contributed to this report.