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WASHINGTON (AP) _ The Federal Reserve left a key interest rate unchanged Tuesday as the nation's economic recovery struggles to ride out the roller-coaster stock market and rising worries about war with Iraq.

While the Fed held short-term interest rates steady, it continued to leave the door open to future rate reductions if economic conditions worsen.

By keeping rates low or possibly nudging them down later, Fed policy-makers hope to motivate consumers to spend more and businesses to ramp up investment, something that would strengthen the fragile recovery.

Two Fed members _ Edward Gramlich and Robert McTeer _ voted against the central bank's decision on Tuesday to leave rates unchanged. They wanted to see the funds rate lowered.

The Fed said that economic information since its last meeting on Aug. 13 suggests that consumer and business demand is ``growing at a moderate pace.''

Over time, the Fed's currently low interest rates and gains in productivity should be ``sufficient to foster an improving business climate,'' it said.

However, the Fed said that ``considerable uncertainty persists about the extent and timing of the expected pickup in production and employment owing in part to the emergence of heightened geopolitical risks.''

For now, Federal Reserve Chairman Alan Greenspan and his Federal Open Market Committee colleagues opted to hold the federal funds rate _ the interest that banks charge each other on overnight loans _ at 1.75 percent, the lowest level in 41 years. It marked the sixth consecutive Fed meeting this year that policy-makers decided to leave rates alone.

However, the Fed continued to view the possibility of weak economic conditions, rather than inflation, as the greatest risk to the economy. That signaled that the Fed is prepared to cut rates, if necessary.