London/New York, Nov. 25 (Reuters): The US Federal Reserve launched an $800-billion plan on Tuesday to buy mortgage-related debt and back consumer loans in its bid to revive the lending market and steer the global economy away from a deep recession.

As the Fed announced its move, the US posted the sharpest fall in gross domestic product since 2001, likely joining Europe in recession, while China’s economy is expected to grow next year at the slowest pace since 1990.

The Fed’s move is intended to strike at the heart of US economic woes, the collapsed housing market. The meltdown in the market for high-risk mortgages that followed has engulfed the world and caused the worst financial crisis in 80 years.

Under its latest massive life-support intervention for the US financial system, the Fed announced a $600-billion programme to buy mortgage-related debt and securities and a $200-billion facility to support consumer debt securities.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved financial conditions more generally,” the Fed said.

US economy shrinks

The US economy shrank more severely during the third quarter than first estimated as consumers cut spending at the steepest rate in 28 years, according to a commerce department report.

Its revised annual rate of decline in third-quarter GDP — down to 0.5 per cent from 0.3 per cent that it reported a month ago — was the sharpest fall since the third quarter of 2001 when the terror attacks against the US took place.