European stock markets, which had dropped sharply on Monday and Tuesday, rose following the interest rate cut.
The UK's FTSE 100 closed up 161.9 points at 5,740.1, having fallen as much as 4.3 per cent earlier in the day.
Latin American stocks also surged, with the Brazilian Bovespa rising 4.45 per cent after slumping 6.6 per cent in the previous session.
Trading of Mexican stocks was temporarily halted due to the high trading volume.
Asian markets, which all fell substantially on Tuesday, closed before the announcement had been made.
Al Jazeera's John Terrett said in New York that the Federal Reserve's move was to send a message that the leadership of the US economy was prepared to pull out all the stops to prevent a recession.
It was the largest single shift in interest rates since November 1994, when the bank raised rates by three-quarters of a point.
It was also the first rate cut in between regularly scheduled policy meetings since September 17, 2001, the first day US financial markets reopened after the September 11 attacks.
George Bush, the US president, said he hoped the $145bn economic stimulus plan he announced last week could be implemented quickly.
"Everybody wants to get something done quickly, but we want to
make sure it is done right, and make sure that everybody's realistic
about a timetable."
On Monday, European markets appeared to have decided that the package was insufficient to prevent a looming recession in America.
Markets there fell, while US markets remained closed for Martin Luther King Day.
The markets been volatile since last year when hundreds of thousands of low income US homeowners defaulted on loans which had been given out with little or no down payment.
The sub-prime crisis led to US lenders such as Citibank and Merrill Lynch announcing in recent weeks that they had lost tens of billions of dollars.
That situation in the US has been compounded by higher unemployment rates, rising food prices and oil prices at around $100 a barrel.