U.S. stock futures remained volatile after the U.S. Federal Reserve Board announced an emergency cut to interest rates on Tuesday.

The Fed slashed its target for the federal funds rate by 75 basis points to 3.5%.

“While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,” the central bank said in a statement.

“Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labour markets,” the Fed said.

U.S. stock index futures had been down sharply as Asian stock markets extended their free-fall into a second day, plunging amid fears that a possible U.S. recession will cause a worldwide economic slowdown.

Japan’s Nikkei stock average closed down 5.65% and Hong Kong’s Hang Seng index lost 8.65% a day after showing its biggest losses since the Sept. 11, 2001, terrorist attacks.

In morning trading, the UK’s FTSE 100 was up 0.55%, Germany’s DAX index fell 0.97% and France’s CAC-40 rose 0.47%.

U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr. But Wall Street future prices were down sharply.

The Canadian dollar opened at 96.76¢, down 0.05 of a cent from Monday’s close.

Economists expect the Bank of Canada will cut its benchmark lending rate by 25 basis points to 4% at its rate-setting meeting at 9:00 ET.

In other economic news, strong gasoline station sales and a recovery in general merchandise store sales helped push up Canadian retail sales by 0.7% in November to an estimated $34.8 billion. This marked the third increase in retail sales in four months, Statistics Canada said today.

In today’s earnings news, Bank of America, stung by a US$5.3 billion mortgage-related writedown, reported quarterly results Tuesday that fell short of Wall Street’s expectations.

The Charlotte, N.C.-based company said its net income plunged 95% to US$268 million, or 5¢ a share, from US$5.26 billion, or US$1.16 a share, a year earlier.

Crude-oil futures dropped US$3 to US$87.57 a barrel, and gold futures fell US$19.90 to US$861.8 an ounce

Toronto stocks plunged Monday as fears of further slowdown in the U.S. led to billions of dollars in selloffs.

The S&P/TSX composite index closed down 604.98 points, or 4.75%, at 12,132.14.

It was the biggest one-day drop for Candian stocks since 9/11.

In the past week, the index has shrunk by more than 1,500 points, or 11.4%.

The junior S&P/TSX Venture composite index closed down 227.69 points, or 8.70%, at 2,390.52.