By Mike Peacock
Reuters

LONDON (Reuters) - Investors sought to gauge on Wednesday the prospects of a near-term U.S. rate cut to calm a financial storm stemming from America’s faltering home loan market, as some experts said the world economy would take a hit.

There were mixed messages about the Federal Reserve’s intentions following last week’s half-point cut in its discount rate, which governs its loans to banks, a move which helped battered stock markets claw back some lost ground.

Speculation the Fed might cut its benchmark interest rate soon was fired by Senator Christopher Dodd, chairman of the U.S. Senate Banking Committee, who said Fed Chairman Ben Bernanke had told him he would use “all available tools” to calm the markets.

Dodd met Bernanke and U.S. Treasury Secretary Henry Paulson on Tuesday to discuss market turmoil.

But nothing was heard from Bernanke himself and Richmond Federal Reserve Bank President Jeffrey Lacker dampened hopes for an imminent rate cut.

“Financial market volatility, in and of itself, does not require a change in the target federal funds rate, in my view,” he said. “Interest rate policy needs to be guided by the outlook for real spending and inflation.”

The Wall Street Journal reported on Wednesday that Fed officials were cautiously optimistic the steps they have taken to relieve a squeeze in credit markets were working and may wait until their next policy meeting before considering a rate cut.

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