TOKYO - THE Bank of Japan kept its benchmark interest rate steady on Wednesday as investors in Tokyo sent Japanese stocks soaring in reaction to a bigger-than-expected cut in US rates overnight.

Japan's central bank decided at the end of a two-day policy meeting to keep the overnight call rate at 0.5 per cent, a bank official said.

The news came after the US Federal Reserve on Tuesday reduced its key benchmark rate by a larger-than-expected half percentage point to 4.75 per cent to keep the recent credit crunch from hurting the overall US economy.

Government officials and investors in Japan welcomed the Fed's move amid worries that problems in the US mortgage market would trigger a slowdown in the US economy, a vital export market for Japan.

'They have reacted very quickly to the realities,' said Kaoru Yosano, Japan's chief government spokesman, of the Fed.

The world's central banks like to show they are working together to maintain global stability, and the Bank of Japan would find it hard to raise rates at a time the US is cutting them. -- AP