The Federal Reserve cut interest rates by a hefty half-percentage point on Wednesday as part of an aggressive effort to halt a sharp slowdown in an economy hit by a housing slump and a credit crunch.

The Fed’s action takes the bellwether federal funds rate target to 3 percent, the lowest since June 2005, and comes just eight days after it slashed rates by a bold three-quarters of a point. Wednesday’s follow-up reduction was in line with the expectations of many financial market participants.

The cumulative 1.25 percentage point reduction in the benchmark overnight rate in less than two weeks ranks among the most abrupt rate-cutting sprees in the modern history of the U.S. central bank.

U.S. stock markets turned positive after the Fed’s decision was announced, while prices for short-term government debt rose and the dollar fell. Dallas Federal Reserve Bank President Richard Fisher dissented, preferring to hold rates steady.

“Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain,” the Fed said in a statement outlining its decision.

When the Fed lowered rates on January 22 it had cited “appreciable downside risks to growth.”

The Fed’s action comes on the heels of a government report showing that the economy grew at a weak 0.6 percent annual pace in the last three months of 2007 as consumers curbed spending and homebuilding plunged. Growth of 2.2 percent for all of 2007 marked the economy’s weakest expansion in five years.