The US Federal Reserve has taken new steps to fight off a recession by making $100 billion (£49.7 billion) available to banks, after US payrolls fell by 63,000 in February - the biggest decline since March 2003.

The Fed's surprise boost of term auction amounts was a reaction to a broad recognition that deterioration in the financial markets had accelerated recently.

The Fed said it would increase its Term Auction Facility by $100 billion and it is widely expected to cut interest rates, by as much as 0.75 per cent, within the next two weeks.

Ben Bernanke, Chairman of the rate-setting Federal Reserve, has identified high employment as a key component of a nation's health. He is committed to increasing the number of jobs, which he can do by boosting the health of the economy.

The central bank will increase the sums offered at auctions on March 10 and 24 from $30 billion to $50 billion each, adding that it would be prepared to pump larger amounts into the US banking system.

The drop in payrolls during February was above the 22,000 decline recorded at the beginning of the year and above analysts’ expectations. Employment in the private sector fell by 101,000, and was offset by 38,000 new jobs in the US Government.

The Dow Jones industrial average fell 170 points to 11,871 in late trading today after yesterday closing 214.60 points down on the back of the worst quarterly home foreclosure figures since 1945.

The jobless rate declined to 4.8 per cent, reflecting a shrinking work force as it appeared people gave up looking for work.

Paul Ashworth, chief US international economist at Capital Economics, said the 101,000 fall in private sector roles "screams recession", adding: "The 63,000 decline in US non-farm payrolls in February is the clearest and most reliable indication yet that the economy is now in recession."

The FTSE 100 index of London's leading companies closed down 66.5 points at 5699.9.

Overnight in Asia, Hong Kong’s Hang Seng index closed down 841.40 points, or 3.6 per cent, at 22,501.33.

In Japan, the Nikkei 225 slumped by 432.32 points to close 3.27 per cent down at 12,782.80 – its lowest finish in more than six weeks.

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