The Federal Reserve launched a new $1.2 trillion plan yesterday to boost lending and revive the economy, the Associated Press reported.

The government will spend up to $300 billion to buy long-term government bonds and another $750 billion to buy mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. That is on top of $500 billion in securities the government is already buying from Fannie and Freddie. The government also said it would double its purchases of Fannie and Freddie debt to $200 billion.

“The Fed is clearly ready, willing and able to be the ATM for the credit markets,” said Terry Connelly, dean of Golden Gate University’s Ageno School of Business in San Francisco.

As the Federal Reserve wrapped up a two-day meeting, it also left a key short-term bank lending rate at a record low of between zero and 0.25 percent.

This new effort is expected to lower mortgage rates even more, with the rates on 30-year mortgages now averaging 5.03 percent, according to Freddie Mac. If the government is successful in stabilizing the credit and financial markets, the recession could end this year and start a recovery period next year, Federal Reserve Chairman Ben Bernanke has said in recent weeks.

The announcement boosted government bond prices, with the yield on the benchmark 10-year Treasury note dropping to 2.5 percent from 3.01 percent. The Dow Jones industrial average rose 90.88 points, or 1.2 percent, to 7,486.58 yesterday.