The US Federal Reserve Bank has left the key federal funds interest rate unchanged, at the 41-year low of 1.25%.

The funds rate is the interest banks charge each other on overnight loans and is the Federal Bank's main way of influencing economic activity.

After two days of meetings, the Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues decided to keep the rate static in a bid to lift spending and investment by both consumers and businesses.

"Oil price premiums and other aspects of geopolitical risks have reportedly fostered continued restraint on spending and hiring by businesses," said the Federal Open Market Committee in a statement.

"However, the committee believes that as those risks lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to an improving economic climate over time."

No surprises

Economists had been expecting the rate to remain unchanged to avoid any renewed nervousness on the financial markets.

Tuesday's state of the nation address by the US president George W Bush on Tuesday, where he warned of a possible war against Iraq, had jolted already dwindling markets across the world.

Analysts said the ongoing uncertainty was taking its toll on investor sentiment and paralysing business decisions.

But they said leaving borrowing costs low might motivate consumers to keeping spending and push businesses to renew investments.

The Dow Jones index of leading US shares was up 0.5% or 38 points at 8,127 at 20.20 GMT following the Fed's decision.