Updated from 2:42 p.m. EST

The

Federal Reserve

left its benchmark federal funds rate at 1.75%, its lowest level in more than 40 years, but kept the door open to further cuts.

Saying that risks lean more heavily toward conditions that may generate weakness in the economy rather than inflation, the central bank maintained a bias toward easing interest rates, which it adopted in August.

"Over time, the current accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, should be sufficient to foster an improving business climate," the Fed said. "However, considerable uncertainty exists about the extent and timing of the expected pickup in production and employment, owing in part to the emergence of heightened geopolitical risks."

Two of the 11 Federal Open Market Committee members, Edward Gramlich and Robert McTeer, dissented from the central bank's decision, arguing instead for a reduction.

The meeting's outcome did little to relieve downward pressure on the market, though it was consistent with Wall Street expectations. The

Dow Jones Industrial Average

dropped 197.6 points to 7674, while the

Nasdaq Composite

shed 3 points to 1181.7.

Since the Fed's last gathering in August, investors have groped with fears about Iraq, the economy and earnings. After rebounding from a six-year low in July, the Nasdaq has given up those gains.

Still, the Fed's remarks differed only slightly from its statement in August. Instead of pinpointing the risks of corporate governance problems, the central bank highlighted concerns about war in Iraq.

The dissents may be significant, however. This is the first time there have been two since May 1998.

Moreover, up until now, few economists have predicted any change in rates this year. "I think you will see a few economists change their forecasts," said Ethan Harris, an economist at Lehman Brothers. "For people who take their cues from these statements, there is reason to make a call on rate cuts."

Fed funds futures, a good proxy of monetary policy, were lately putting 56% odds on a cut at the committee's next meeting Nov. 6, and betting on an 86% chance of a rate reduction by the end of the year.

After the announcement, speculation surfaced about an intermeeting rate cut. But fed fund futures were only pricing in a 10% chance of that. One way the Fed could have signaled an intermeeting cut would have been to say it is monitoring the situation closely, which it did not.

Still, concerns about the economy linger. This week's economic data, including a report on leading economic indicators and on consumer confidence, have suggested the recovery continues to be sluggish.