The dollar tumbled against major currencies except the yen on Tuesday after the Federal Reserve unexpectedly slashed its benchmark overnight lending rate in an attempt to allay market fears of a U.S. recession.

The Fed's emergency move to cut rates by three quarters of a percentage point was precipitated by a global equities rout.

The U.S. central bank's move wiped out the dollar's yield advantage over the euro, with the federal funds rate target now at 3.5 percent and official euro zone interest rates at 4 percent. This put the European currency on track to post its biggest one-day gain against the dollar in two years.

The cut, which preceded next week's Federal Open Market Committee monetary policy meeting, was not enough to prevent U.S. stocks from falling when the market reopened after Monday's public holiday.

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"We are skeptical that the rate decision will have a lasting impact in offsetting concerns over economic slowdown," Tom Fitzpatrick, global head of foreign exchange at Citigroup in New York, said in a note to clients. "Lower interest rates do little to address underlying weakness in the U.S. housing sector and broader economy."

In New York late afternoon trade, the euro was up 1.2 percent on the day at $1.4613 after briefly racing to $1.4643. The euro has rebounded from a one-month low against the dollar of around $1.4366, according to Reuters data.

"Under any other Fed this would not be a surprise, but this Fed has been reluctant to cater to market expectations," said Mark Meadows, currency strategist at Tempus Consulting in Washington. "This should support the euro in the short term, however our long-standing view is still that the U.S. economy will rebound and help the dollar gain into the middle of this year."

Tuesday's emergency step was the biggest Fed rate cut since 1984 and was the first intermeeting cut since September 17, 2001.

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