Mumbai: The US Federal Reserve approved a cut in its emergency lending rate to financial institutions to 3.25 per cent from 3.50 per cent, effective immediately, in a rare week-end move.

The central bank created a lending facility for big investment banks to secure short-term loans, in a move to provide emergency financing to cash-strapped Bear Stearns through JPMorgan.

Fed had earlier announced a set of other unconventional steps to bail out a credit market deeply in crisis.

"These steps will provide financial institutions with greater assurance of access to funds," Fed chairman Ben Bernanke said in a brief conference call on Sunday.

The Fed move came after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million.

This, however, had little impact on world financial markets. Asian stocks plunged today after the JPMorgan and Fed announcements. Markets in Europe Australia and New Zealand were also fell in early trading.

The new lending facility is geared to give major 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 per cent and a range of collateral - including investment-grade mortgage backed securities - will be accepted to back the overnight loans.

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."

The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JPMorgan said the Fed would provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JPMorgan.