Washington ? The Federal Reserve slashed its key interest rate Tuesday, moving to deliver shock therapy to financial markets nervous about sub prime mortgages and a stubborn credit crisis.

The half-point cut in the benchmark short-term rate was steeper than most analysts had expected. And Wall Street, which had worried in recent weeks that the housing and credit problems could put the economy into recession, immediately rallied on the news. The Dow Jones industrial average soared more than 330 points, or 2.5 percent, its sharpest gain in more than four years.

“It was everything the market had been begging for for weeks – and more,” said Richard A. Weiss, chief investment officer at City National Bank in Los Angeles.

But the Fed, raising the specter of inflation for the first time in weeks, signaled that it did not intend Tuesday’s action to be the first shot in a rate-reduction campaign that some analysts have predicted.

The contrary combination of a larger-than-expected cut and the signal that the Fed has little interest in making further cuts captured the hard-to-read nature of the economy’s condition.

On the one hand, the housing market has been roiled by surging defaults on subprime mortgages, which go to borrowers with less-the-perfect credit histories. The defaults rippled through financial markets, which until this summer had favored mortgage-backed securities, convincing many investors that the financial products were nowhere near as secure as they previously had thought and causing many to stop buying them.

On the other hand, aside from the housing and financial sectors, the economy has continued to show moderate strength and low inflation.

Most analysts had expected no more than a quarter-point rate decrease. Fed officials said that their steep cuts had a very specific purpose: to get lenders to stop worrying so much about a credit freeze-up and to begin lending again. They said a failure of lenders to do so could worsen the housing downturn and slow the economy’s already modest growth.

Tight credit conditions have “the potential to intensify the housing correction and to restrain economic growth more generally,” the Fed’s rate-setting committee said in a statement that accompanied the cuts. “Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets.”

To underscore their reluctance to make further cuts, the policymakers resurrected a subject that they have made almost no mention of recently – inflation. “Readings on core inflation have improved modestly this year. However, the committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully,” the central bankers said in their statement.

“This is some real action here, and they don’t intend to come back with more cuts,” said Diane Swonk, chief economist with Mesirow Financial in Chicago.

The Fed dropped to 4.75 percent the key federal funds rate, which banks pay on overnight loans to each other. It also cut the less-significant discount rate on Fed loans to banks by a half a percentage point, to 5.25 percent.