The U.S. Federal Reserve has decided to cut a key interest rate by one quarter percentage point to 2.0 percent to prevent the economy from slipping into recession.

It marked the seventh rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a severe housing slump and credit crisis.

Alec Young, an analyst at Standard &Poor's rating house in New York takes the small cut as a "vote of confidence in the economy."

"We think the Fed is done with their current easing cycle. We think it validates the fact that while the economy's weak and it needs the Fed to be cutting interest rates, things aren't so bad that they need to continue to do it. So in a way, it's a bit of a vote of confidence for the economy that the Fed feels that things are stable enough that they can actually stop stimulating it, stop cutting rates."

As a result of the Fed actions in the past seven months, the federal funds rate, which commercial banks charge each other on overnight loans, have been cut by a combined 3.25 percentage points.

The Fed action came hours after a government report showed that the U.S. economy grew at an annual rate of 0.6 percent in the first three months of this year.

Before the Fed made its first rate cut in September, the funds rate had stood at 5.25 percent.

Wall Street gave up sharp gains and closed lower on Wednesday after the Federal Reserve cut interest rates but left investors guessing about the central bank's next move.

The Dow Jones industrial average fell 12 points, or 0.1 percent, to 12,820.The Standard & Poor's 500 index fell 5 points, or 0.4 percent, to 1,386, and the Nasdaq composite index fell 13 points, or 0.6 percent, to 2,413.

In Europe, Britain's FTSE 100 closed down 2.10 percent, Germany's DAX index rose 0.92 percent, and France's CAC-40 rose 0.39 percent.