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Federal Reserve chairman Ben BernankeJ. Scott Applewhite/The Associated Press

Central banks are back at the barricades as mounting troubles in Europe, the United States and emerging markets threaten the fragile global recovery.

An interest rate cut Thursday by the People's Bank of China, its first since the height of the 2008 financial crisis, underscored the sudden weakness of an economy that until recently had been the primary engine of the global rebound. And in Washington, while he signalled no new stimulus measures, Federal Reserve chairman Ben Bernanke said the U.S. central bank is poised to act if the global turmoil deepens.

China's growth has been slowing, while the United States is in the midst of economic and political uncertainty. Both countries fear an escalation of the European crisis, which shows no signs of easing.

Central bankers, including Canada's Mark Carney, are warning that risks to a sturdy global recovery have been rising. Much of their concern has been focused on Europe's long-festering debt crisis, its rapidly slowing economy and growing threats to the survival of the single currency union.

But whether central banks have the power to ride to the rescue is in question. Unlike 2008, when central banks and governments reacted to the financial crisis and ensuing global slump with massive stimulus spending and record low interest rates, they now have less to work with as conditions again deteriorate. Deficit-ridden governments are being pressed to slash spending, while some observers question the value of further rate cuts. Piling on more public debt in a debt-choked world at a time when consumers and companies are still retrenching could in fact prolong the recovery time, analysts warn.

Still, investors have been craving central bank intervention, and markets welcomed the move by China's central bank to trim its key loan and deposit rates. It also freed commercial banks to give bigger discounts to borrowers. The Chinese action followed a rate cut this week by Australia's central bank, which also cited the risks posed by Europe and China's own slowing growth. Brazil reduced borrowing costs to a record low last week.

"Finally, the Chinese government has chosen to use the price of credit to support its economy," said Na Liu, founder of CNC Asset Management Ltd. and a China adviser to Scotia Capital Inc.

Meanwhile, Mr. Bernanke told lawmakers in Washington that the European situation "poses significant risks to the U.S. financial system and economy" and pointedly warned that the "severe tightening of fiscal policy" in the U.S. – budget cuts and tax hikes required by law to take effect Jan. 1 unless feuding Republicans and Democrats in Congress reach a compromise – would also endanger the recovery.

The Fed "remains prepared to take action as needed … in the event that financial stresses escalate," Mr. Bernanke said, without specifying what sort of responses might be on the table. But Janet Yellen, the Fed's influential vice-chair, signalled in a speech in Boston the previous day that besides its commitment to keeping the benchmark rate near zero, the central bank should look at a third round of Treasury bond purchases – so-called quantitative easing.

"Recent labour market reports and financial developments serve as a reminder that the economy remains vulnerable to setbacks," Ms. Yellen said in prepared remarks. "It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest."

Adding liquidity or further reducing real borrowing rates may not prove helpful "in a weakening demand environment," said Dan Ryan, a senior analyst with IHS Global Insight in Philadelphia. "You can put a lot of money out there, but you can't make people spend."

Unlike the U.S. and other industrial countries, China still has considerable fiscal and monetary manoeuvring room. But many economy watchers worry that a new wave of stimulus spending and easier credit would simply re-inflate equity and real estate asset bubbles, without boosting domestic consumer demand.

They have similar concerns about the United States, even though policy makers have fewer levers to pull. "We fully expect Bernanke to keep trying," said Mark Spitznagel, chief investment officer of hedge fund Universa Investments LP in Santa Monica, Calif., and a vocal critic of the Federal Reserve's "relentless expansion of credit."