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Bets seen on emergency Fed rate cut

Futures markets suggest there is a 24% chance that central bank could make a surprise cut before next policy meeting.

NEW YORK (CNNMoney.com) -- Futures markets began betting Friday that the Federal Reserve will institute an emergency interest rate cut this month in the wake of the credit worries that have roiled U.S. markets in recent weeks.

The latest reading suggested there is a 24 percent chance that the central bank will lower a key short-term interest rate in August. Markets were not betting on a rate cut in August immediately following the Federal Reserve's policy meeting on Tuesday.

Futures markets suggest that in September there will be a 76 percent chance the central bank will cut rates at its meeting.

Stocks plummeted Thursday, with the Dow industrials falling 387 points, and were poised for another steep selloff Friday as credit concerns continued to trouble Wall Street.

The Fed announced it injected an additional $19 billion of temporary reserves to the banking system through repurchase agreements and later in the morning added $16 billion for a total of $35 billion Friday, after pumping about $24 billion into cash markets just a day earlier.

The Fed issued a statement Friday morning, stating it "is providing liquidity to facilitate the orderly functioning of financial markets."

It added: "The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target rate of 5-1/4 percent."

At its policy meeting earlier this week, the Fed held interest rates at 5.25 percent, where it has remained since last summer. In the closely watched accompanying statement, the central bank said it was keeping a close eye on growing credit problems in the economy but did not hint at a rate cut, saying inflation remained its main concern. Top of page