LONDON/NEW YORK (Reuters) - Central banks around the world cut interest rates in unison on Wednesday to try to limit economic damage from the worst financial crisis in 80 years.

In an unscheduled announcement made as New York traders were reaching their offices, the Federal Reserve said it was cutting its key federal funds rate by 50 basis points to 1.5 percent.

China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in a coordinated response which investors had been demanding.

Battered shares rallied initially on the move, but European stocks then fell anew and U.S. stocks looked set to open lower as the initial euphoria evaporated.

The U.S. approved a $700 billion package last week to rescue its ailing banks but failed to rally its markets. Governments across the globe have been pushing ahead with their own emergency measures amid calls for a more coordinated approach.

The Fed set out the threat to the economy from a crisis which has redrawn the banking landscape and left many people frightened of losing their savings and their jobs.

"Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months," it said in a statement.

"Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."

Wednesday's monetary policy barrage marked the first time China, growing ever more important in global economic terms, has announced a change in rates at the same time as other countries.