Fed cuts key interest rate by hefty 1/2 point

WASHINGTON (Reuters) - The U.S. Federal Reserve on Tuesday slashed the benchmark federal funds rate by a half-percentage point in a bold bid to buffer the economy from a housing slump and related financial market turbulence.

The decision by the central bank's Federal Open Market Committee took the overnight rate down to 4.75 percent, its lowest level since May of last year. It was the first cut in the interbank rate -- the Fed's main tool to influence the economy -- since June 2003 and the first half-point reduction since November 2002.

Financial markets had widely expected the Fed to lower overnight borrowing costs, but were split over whether the move would be a quarter-point or more-aggressive half-point.

In a related move, the Fed also lowered the discount rate it charges for direct loans to banks by a half-point to 5.25 percent.