The Federal Reserve Board, in an effort to spark new lending and provide a modest lift to the weak U.S. economy, aannounced on Tuesday that it was reducing the amount of money that banks must hold in reserve.

The step, coming on the eve of Fed Chairman Alan Greenspan's semi-annual report on the economy to Congress, was seen by some economists as a subtle and unusual effort by the central bank to influence the flagging economy.

The new policy is projected to free up $8 billion in cash for lending and investment by banks. It means that banks must hold reserves equal to 10% of their "transaction"--typically checking accounts. Under the old rule, which will expire April 2, banks had to maintain reserves of 12%.

The announcement, which comes amid continuing worries about the economy and banking system, drew a mixed response from the financial world. Some analysts said it would bolster bank profits, while others pointed out that it would have little effect on lending unless more borrowers step forward.

At first, the Dow Jones average of 30 industrial stocks jumped 16 points on the news, but then drifted back down.

"It sounds like half a loaf," said Gary Schlossberg, an economist at Wells Fargo Bank in San Francisco. "It could help" the economy, he added, especially if the Fed engineers further declines in interest rates.

While the move was seen as largely symbolic, some economists said that the Fed's action might shave the federal funds rate--the interest banks charge each other for overnight loans. The Fed has targeted the rate at 4%, and it was at 4.25% late Tuesday. But it was doubtful whether consumers would feel much impact from an interest rate drop.

Since the recession began in mid-1990, the Fed has repeatedly used more conventional tools to push the economy, including cuts in the discount rate, which it charges to federal reserve banks, and the federal funds rate, which banks charge each other for overnight loans.

The move shows that "the Federal Reserve is using the entire arsenal of tools at its disposal to encourage economic growth," said Don Ogilvie, executive vice president of the American Bankers Assn. "These actions result in an increase in the nation's money supply and a lowering of interest rates so that money can be made available at affordable rates to consumers, small businesses and other borrowers."