WASHINGTON — The Federal Reserve slashed its target interest rate to nearly zero and is taking a number of other unprecedented moves in an effort to battle a severe financial crisis and worsening recession.

Consumers trying to buy a house or finance a car loan could be the big winners, but analysts caution that any upturn in the economy is still months away.

The Fed on Tuesday announced it was reducing its target for the federal funds rate to between zero and 0.25 percent, down from 1 percent, a level that was already the lowest target rate in a half century.

And the central bank pledged to use "all available tools" to fight the current downturn. It said it was likely rates would be kept at "exceptionally low levels" for some time to come.

"The Fed has taken some very historic steps and for the first time since this crisis began, they have gotten ahead of expectations instead of trailing behind them," said Mark Zandi, chief economist at Moody's Economy.com.

The Fed's announcement sparked a big rally Tuesday on Wall Street, with the Dow Jones industrial average jumping 360 points, or 4 percent, as investors were pleasantly surprised by the Fed's resolve to aggressively attack the country's economic woes.

The reaction in Asian markets was more subdued overnight. In Japan, the Nikkei 225 stock average was down 0.2 percent after initially rising 1.1 percent. Hong Kong's Hang Seng Index rose 0.7 percent to 15,235.57 while benchmarks in mainland China, Singapore, Thailand and Indonesia added about 1 percent or more.

Economists cautioned that even with the Fed's bold moves it will take months for the economy to stabilize given that it is confronting the worst financial crisis since the Great Depression and a yearlong recession that is already the longest in a quarter century.

The news on the economy is expected to get worse before it gets better. Businesses, which have already cut nearly 2 million jobs since January, keep laying off workers in the face of slumping demand.

The government reported Tuesday before the Fed rate announcement that home builders slashed production in November by 18.9 percent, the biggest drop in nearly a quarter century, pushing activity down to a record low annual rate of 625,000 units as the woes in housing, where the current economic troubles began, showed no signs of abating.

More economic news was released today when the Commerce Department reported the current account trade deficit for the July-September quarter. Economists say the deficit will narrow slightly to $178.8 billion, down from $183.1 billion in the second quarter.

Economists were optimistic the central bank moved to cut interest rates, pledging other efforts to unfreeze frozen credit markets will translate into significantly lower interest rates for consumers.