Wall Street started betting on an emergency US interest rate cut today as it slammed mortgage market reforms from US Treasury Secretary Henry Paulson amid news that housing foreclosures jumped 60 per cent last month.

Mr Paulson was accused of failing to address the credit crunch as a hedge fund of private equity group Carlyle teetered on the brink of collapse, a rival fund was issued with a default notice, the dollar hit a 12-year low of 100.40 against the yen, oil hit a record $110.34 a barrel, and gold struck $1,000 an ounce.

Against the pound the dollar was $2.03.

Fears of fresh waves of credit crunch fallout sent a chill through equity markets, with Asia, London and Wall Street plunging.

The Dow Jones industrial average fell 200.10 points to 11.910.10 in within minutes of opening, while London's FTSE 100 index of leading shares dived 133.7 points to 5,642.7.

But both began to rally as expectation grew that the Fed would not wait until next week to cut rates, but would take emergency action this week.

The Dow Jones also responded to a proposed rescue plan for the US mortgage and housing markets in which the Federal Housing Administration would be permitted to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages.

Put forward by US House Financial Services Committee Chairman, Barney Frank, under the terms of the deal the existing mortgage lender or holder would receive a payment from the proceeds of a new Federal Housing Association loan, in exchange for the acceptance of a substantial writedown of principal, “if the restructured loan would result in terms that the borrower can reasonably be expected to pay.”

Mr Frank said the proposed program could refinance up to 2 million loans.

On January 22, the Fed imposed an emergency cut of 0.75 percentage points in the cost of borrowing to 3.5 per cent, then reduced the rate by a further half-point at its scheduled meeting eight days later.

The Fed is scheduled to meet next on March 18 and had been widely expected to reduce the cost of borrowing by at least half a percentage point to 3 per cent. Last week, grim job data prompted some economists to urge the central bank to cut by three quarters of a percentage point.

Earlier this week, the US Federal Reserve made $200 billion worth of safe US Treasury bonds available in a co-ordinated Central Bank move to shore-up financial markets.

Chris Whalen, at the Wall Street consultancy, Institutional Risk Analytics, said: "We need the Treasury Secretary to focus on current issues. We thought as an ex-Goldmans man he would have been more on the ball. What's clear today is that he is just another bureaucrat."

The Paulson plan is designed to prevent a repeat of the collapse of one fifth of the US mortgage market.

Mr Paulson proposes strong nationwide licensing standards for those who sold home loans to people on low incomes with poor credit history and were likely to default.

He is also threatening to curb the dividends paid to shareholders to ensure stronger balance sheets for banks.

The California-based RealtyTrac said today that US home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling.

This emerged as a Dutch-listed fund owned by Carlyle, the US private equity giant, appeared to be heading for liquidation after failing to pay back $16 billion of debt to its lenders and the US Thornburg Mortgage group received a default notice from Morgan Stanley after failing to meet a $9 million margin call.

Ratings agency Standard & Poor's said sub-prime mortgage write-downs could reach $285 billion but an end to the write-downs is now in sight for large financial institutions.

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