LONDON, England - November 3, 2010 - The U.S. Federal Reserve will pump another $600 billion into the U.S. money supply over the next eight months in a bid to resuscitate America's failing economy.

The latest round of quantitative easing (QE) comes on top of the $1.7 trillion already completed and is intended "to promote a recovery", the Fed said. It is changing tack, however, buying U.S. government bonds instead of corporate debt and mortgage-backed securities. Existing QE will be rolled over, but also recycled into Treasuries.

By the end of June, the Fed expects to have bought $850-900 billion of Treasuries - roughly $110 billion a month, $75 billion of which will be additional QE. The Fed also kept interest rates at 0%-.25%, where they have been since December 2008.

Yields on 10-year U.S. government bonds dipped 0.06% to 2.53% as the markets digested the news, which was largely as expected. Lower yields feed back into the economy by reducing borrowing rates for companies and households, thereby stimulating investment and spending.

The dollar fell against most currencies due to QE, raising fears of a retaliatory strike by the Bank of Japan on Friday.

The Fed's decision will also heap pressure on the Bank of England to follow suit on Thursday, when it decides whether to increase its £200 billion of QE.

However, positive data on the UK's dominant services sector made QE2 less likely.

The Markit/CIPS purchasing managers' index rose from 52.8 in September to a four-month high of 53.2 last month, confounding predictions of a drop to 52.5. Sterling jumped to a nine-month peak against the dollar, rising 0.87 cents to $1.6095 in late trading in New York.

The U.S. has resorted to more QE as it grapples with a slower rebound than hoped and unemployment at a 26-year high of 9.5%. Inflation has also hit a nine year low of 1.2% - raising fears of a deflationary debt trap.

Further extension of QE remains possible, with the Fed saying, "The committee will regularly review the... overall size of the asset-purchase program in light of incoming information and will adjust the program as needed."