March Fed rate cut ideas reshaped

By Ros Krasny

CHICAGO (Reuters) - U.S. short-term interest rate futures fell on Tuesday after the Federal Reserve announced coordinated moves with other central banks to boost credit market liquidity, reshaping prospects for next week's Fed policy meeting.

Futures indicate that traders see about a 60 percent chance that the U.S. central bank will cut benchmark rates by 75 basis points next week, versus a 100 percent chance late on Monday.

The prospects for an emergency rate cut before the Federal Open Market Committee meets next week have dwindled.

"The Fed has come to the realization that additional measures are needed in place of just deep fed funds rate cuts, though more cuts are needed," said Thomas Di Galoma, head of U.S. government bonds at Jefferies & Co. in New York.

The drop in futures, which move inversely to the implied fed funds yield, came in step with a spike in two-year Treasury note yields.

The Fed said it was taking coordinated action with other central banks to provide liquidity to global markets, and also said it was lending up to $200 billion of Treasury securities to primary dealers.

"In the bigger picture is unclear whether this will prove sufficient, but it does demonstrate the Fed's resolve," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York.

(Additional reporting by Richard Leong in New York; Editing by Tom Hals)