The United States (US) Federal Reserve on Tuesday ramped up efforts to provide more relief to squeezed financial institutions, a coordinated action with other central banks aimed at easing a global credit crises that threatens to push the US economy into its first recession since 2001.

The Fed said it will make up to US$200 billion (euro130.38 billion) in Treasury securities available to big Wall Street investment houses and banks.

The new action is designed to ensure that there is an ample supply of Treasury securities, considered the safest investment in the world because they are backed by the US government.

On Wall Street, the Fed's action propelled stocks upward, pushing the Dow Jones industrials higher by more than 250 points in morning trading.

"Pressures in some of these markets have recently increased again," the Fed said in a statement.

"We all continue to work together and will take appropriate steps to address those liquidity pressures."

The other banks involved are the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank.

The Fed announced the creation of a new tool, called the Term Securities Lending Facility, geared to provide primary dealers - big Wall Street investment firms and banks that trade directly with the Fed - with 28-day loans of Treasury securities, rather than overnight loans.

Pledge securities

They would pledge other securities - including federal agency residential mortgage-backed securities, such as those of mortgage giants Fannnie Mae and Freddie Mac - as collateral for the loans of Treasury securities.

"This will not turn the economy around or fix all the problems in the markets, but it should reduce the liquidity issue, at least for now," said Ian Shepherdson, chief economist at High Frequency Economics.

The odds of a deep, three-quarters of a percentage point cut in the Fed's key interest rate next Tuesday have dropped sharply as the Fed's new relief seemed to calm market turmoil, he said.

The loans would be made available through an auction process. Auctions will be held on a weekly basis, beginning March 27.

The new lending initiative "is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally", the Fed said.

Separately, the Fed also on Tuesday said it has authorised increases in existing programmes called "swap lines" with the European Central Bank (ECB) and the Swiss National Bank (SNB).

"These arrangements will now provide dollars in amounts of up to US$30 billion (euro19.56 billion) and $6 billion (euro3.91 billion) to the ECB and the SNB, respectively," the Fed said, extending the term of these swap lines through September 30.

The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit.

A meltdown in the housing and credit markets has made banks and other financial institutions reluctant to lend to each other, causing a cash crunch.

The problems first started in the market for subprime mortgages - those made to people with blemished credit histories. However, troubles have spread to other areas.

- AP