Gold rallied back to the 890 usd mark after the US Federal Reserve's shock 0.75 pct point rate cut.

The precious metal has taken support from the Fed move, with many investors seeing it as confirmation the US economy is in serious strife and heading for recession, sparking a fresh round of safe haven buying.

The dollar has also weakened in response to the cut, buoying gold further as its appeal as an alternative investment to the most common form of currency reserves increases.

'I think the focus right now is on risk aversion,' said David Rinehimer at Citigroup. (NYSE:C) 'The fact that the dollar's come off and equities have stalled is bringing some strong buying interest into the gold market.'

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At 4.43 pm, spot gold was trading at 889.38 usd per ounce, against 865.10 usd in late New York trades yesterday, having hit an intraday high of 894.45 usd.

Prior to the Fed's announcement, prices had been under pressure, trading as low as 849.30 usd as funds were forced to liquidate positions to cover margin calls created by falling equities. Gold has traded in a range of over 45 usd so far today.

Rumours had been circulating throughout the market this morning that an emergency cut was being planned, but the majority of metals analysts had dismissed the claims as the usual chatter which always emerges when financial panic takes hold.

Global equities plunged yesterday on fears of a US recession.

US equities were tipped to open sharply lower today, having been spared much of yesterday's bloodletting with markets shut for the Martin Luther King public holiday. Following the Fed announcement losses have been trimmed, though markets are still lower.

While some investors will be hopeful the Fed's action could help bail out a troubled economy, others see it as a panicked reaction from a central bank that can see the outlook is very much to the downside.

In its statement, the Fed said that 'while strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households'.

The interest rate cuts enacted by the Fed -- slashed from 5.25 pct to 3.50 pct since the onset of the credit crunch -- could also be storing up inflationary concerns, analysts said, which could prove supportive for gold. Investors often buy into gold in a bid to hedge against the damaging effects of rising costs.

Some Fed watchers are now expecting a further 0.5 pct point cut when the Fed meets next week, as the central bank scrambles to shore up a slowing economy.

In other precious metals, platinum was up at 1,548 usd per ounce, against 1,539 usd. Palladium was down at 360 usd per ounce, from 361.50 usd, while silver tracked gold higher, up at 15.97 usd per ounce against 15.60 usd.