WASHINGTON (AFP) - The US Federal Reserve slashed its base lending rate to virtually zero Tuesday while pledging to take further actions to get credit flowing and revive an economy in the worst recession in decades.

The central bank's Federal Open Market Committee (FOMC) lowered its target federal funds rate from 1.0 percent, already at a historic low, to a range of zero to 0.25 percent.

In a statement, the Fed said that weak economic conditions "are likely to warrant exceptionally low levels of the federal funds rate for some time."

Additionally, the Fed said it would take other steps to stimulate lending and economic activity, including large purchases of mortgage securities to help unblock credit.

Cary Leahey, senior economist at Decision Economics, said the Fed "came out swinging and probably did as much as you could expect them to do" to revive economic growth.

The moves to buy up troubled assets, Leahey noted, is part of a strategy economists call "quantitative easing," but effectively means printing money.

"They're pulling every lever and pulling them hard," he said. "They are going to print money until they get a reaction from the economy."

The FOMC statement said the economic outlook remains bleak.

"Since the committee's last meeting (October 28-29), labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined," the Fed said after its unanimous decision.

"Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further."

The Fed said it would "purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets."

The FOMC "is also evaluating the potential benefits of purchasing longer-term Treasury securities" in an effort to bring down other lending rates to stimulate credit and economic growth.

The statement added that the central bank "will continue to consider ways of using its balance sheet to further support credit markets and economic activity."

Eugenio Aleman, economist at Wells Fargo, called the actions "very wise."

"They are not dropping rates to zero but are conducting monetary policy as if it was zero," he said. "They are not saying it is at zero which might be a bad omen for the economy."

Aleman said that in view of current market conditions, the lowered funds rates is "completely symbolic."

"The effective federal funds rate has been lower than 25 basis points for the last month and half so this is just agreement with the market," he said. "This is what the market wants."

After the announcement, Wall Street gains accelerated and the Dow Jones Industrial Average surged 4.2 percent. Bonds also rallied while the dollar fell, as the euro broke above 1.4 dollars.

"The FOMC adopted an aggressive posture, putting aside potential practical complications in implementing such a low fed funds rate target in favor of adopting a proactive strategy," said Peter Kretzmer at Bank of America.

Brian Bethune at IHS Global Insight called the moves "forceful and effective" and consistent with Bernanke's pronouncement in October that the Fed would not "stand down" until the battle against the current economic and credit crisis is won.

"This is exactly the decisive leadership and action that the American public is looking for to pull the economy out of its current tailspin," Bethune said.

Ian Shepherdson at High Frequency Economics said however the latest Fed actions show the economy is at "rock bottom."

"We take no satisfaction from the vindication of our view that one basis point is the right rate for the US; it is a reflection of an utterly desolate economic picture, which will persist for the foreseeable future as the wrenching adjustment in household finances continues," he said.

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