WASHINGTON — Wreckage from a massive crisis on Wall Street could prompt the Federal Reserve to do an about-face and once again cut a crucial interest rate this week or possibly later this year, economists said yesterday.

Just a few days ago, a rate cut appeared largely off the table. Now it has emerged as a possibility as the Fed prepares to meet today against a backdrop of historic upheaval in the U.S. financial system.

Lehman Brothers Holdings Inc., the country's fourth-largest investment firm, filed for bankruptcy protection yesterday. And Bank of America is buying Merrill Lynch in a $50 billion deal.

"It puts a Fed rate cut back on the table," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Seeking to calm frazzled markets, President Bush assured the country his administration is "working to reduce disruptions and minimize the impact of these developments on the broader economy."

But neither Bush, nor Treasury Secretary Henry Paulson, who offered words of reassurance yesterday, could stem the panic.

The Dow Jones industrial average plunged 504.48 points to close at 10,917.51. It was the Dow's biggest point drop since the Sept. 11 terror attacks.

On the other side of the Atlantic, major European central banks plowed billions into markets with the hope of averting a lending freeze-up in the wake of Lehman's failure.

"It is an ongoing process and we have to remain extraordinarily alert," said European Central Bank President Jean-Claude Trichet.

In Asia, China's central bank cut a key interest rate to stimulate growth as inflation has eased. It was the first rate cut there in almost six years. Chinese regulators have steadily raised interest rates over the past three years to contain inflation pressure.

Were the Fed to slice its key rate, the prime lending rate for millions of consumers and businesses — now at 5 percent — would drop by a corresponding amount. The prime rate applies to certain credit cards, home equity lines of credit and other loans. The Fed's key rate and the prime rate are at four-year lows.

Even if the Fed doesn't lower rates today, analysts believe the central bank could switch signals and suggest it could cut rates sooner down the road.