Analysts and financial markets alike predicted a cut in the federal funds rate, which determines borrowing costs throughout the economy and much of the rest of the world, by at least a quarter of a percentage point from 5.5 per cent.

Lower US rates would not only help to add liquidity to the battered world financial system, they would also send a clear signal to investors everywhere that the Fed is willing to take a lead role in attempts to head off a global downturn.

Fed policy makers, led by chairman Alan Greenspan, have left no doubt that they want to get a grip on the crisis that has crushed the world's emerging markets and now threatens to undo the US economy's more than seven-year-long expansion.

Greenspan usually likes to give plenty of warning to investors if he intends to change policy. Thistime was no different. In Congressional testimony last week, he signalled the Fed would need to move "shortly" to protect the US economy from mounting danger.

"With his not-so-subtle hints, Greenspan was making it very clear that he knows where we have to go and that we have to get there quickly," said Joel Naroff, Philadelphia-based economist for First Union Corp. "The only question," he said " is by how much they are going to cut the fed funds rate."

The Federal Open Market Committee, the US central bank's rate-setting arm, will meet at 9 a.m. EDT (1300 GMT). Any rate announcement is expected at around 2:15 p.m. EDT (1815 GMT).

The US stock market closed higher on Monday as investors bet on a Fed rate cut. Inflation-sensitive bond prices eased amid lingering debate over the size of the anticipated easing, the Fed's first such step in almost three years.

Most analysts expect the Fed to cut the fed funds rate by 25 basis points, or hundredths of a per cent, fearing that a more radical easing could bemisunderstood by investors as a sign of panic among policy makers.

But such a small cut now is expected to be followed by a whole series of easings later this year and maybe into next year -- steps that could bring the fed funds rate to below four per cent by the middle of next year, at least by some accounts.

"I'm looking for a series of significant cuts, because I think the situation warrants it," said Phil Braverman, chief economist at DKB Securities Corp. in New York.

"When all is said and done, the markets expect a cut of at least 100 basis points. But if Greenspan wants to accomplish what we think he wants to accomplish, as much as 200 basis points might be necessary," said First Union's Naroff.

To be sure, a cursory look at the US economy alone would reveal few signs of distress. Consumer demand is brisk and the labour market remains tight. In fact, only a few months ago Fed policy makers were so worried about an up tick in inflation that they leaned toward higher, not lower, interestrates.

But underneath the surface, the economy is beginning to show some strain -- particularly in the key manufacturing area, where exports have been hit by the loss of once-profitable markets in ailing Asia and elsewhere.

Last week's near-collapse of Long-Term Capital Management, a huge hedge fund aiming at unusually high returns by embarking on risky investment strategies, was widely seen as the latest sign that the global crisis has come knocking on the United States' front door -- and that it has the Fed deeply worried about the onset of a painful credit crunch.

Analysts warned that financial markets would take it badly should the Fed decide to put off a rate cut, a move that most would interpret as an inability to provide global leadership in a fragile world so desperately in need of financial stability.

"The stock market would be filled with a whole lot of unhappy campers," said Naroff.