Washington Post Staff Writers

Wednesday, January 30, 2008; 2:49 PM

The Federal Reserve cut a key interest rate by half a percentage point today, the second rate cut in nine days, in an aggressive move to try to prevent a recession.

The central bank cut the federal funds rate, the rate at which banks lend to each other, to 3 percent. Combined with a surprise rate cut last week after a massive sell-off on world financial markets, the Fed has now cut the rate by 1.25 percentage points in January, the steepest rate cut in a single month in the nearly 20 years that the bank has been targeting the federal funds rate.

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households," the Federal Open Market Committee said in its statement announcing the cut. "Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets."

The lower rate is likely to reduce the cost of borrowing money through credit cards or auto loans or to invest in a business, and is likely reduce rates on many adjustable-rate mortgages.

Underscoring the softening in the economy, the Commerce Department reported today that gross domestic product, the broadest measure of U.S. economic growth, rose at an 0.6 percent annual rate in the final quarter of the year. That marks the weakest growth since 2002. The stock market, down modestly before the Fed announcement, soared just afterward. For the day, the Dow Jones industrial average <