NEW YORK (AP) -- Goldman Sachs Group Inc., the world's largest investment bank, said Tuesday its third-quarter profit plunged 71 percent from a year earlier, an almost unthinkable drop for a firm widely described as the smartest on Wall Street.

Goldman's results, its worst slump in profits since it went public in 1999, reflected the continuing damage from the ongoing credit crisis that has already vanquished three of its rivals. Goldman and Morgan Stanley, which late Tuesday reported better-than-expected third-quarter results, remain the only major independent investment banks on Wall Street after a major shake-up of the investment banking industry. Lehman Brothers Holdings Inc. filed for bankruptcy Monday after succumbing to distressed real estate holdings, while Bear Stearns Cos. and Merrill Lynch & Co. were swallowed by commercial banks in emergency sales.

After two years of record profits, Chairman and Chief Executive Lloyd Blankfein has been the only CEO to navigate his firm through the market dislocation without posting a loss or major write-downs. But he said "this was a challenging quarter" marred by a "decrease in client activity and declining asset valuations."

That was reflected in the numbers. The New York-based investment bank posted a profit of $810 million, or $1.81 per share, after paying preferred dividends compared to $2.81 billion, or $6.13 per share, a year earlier. Revenue for the three months ended Aug. 29 skidded 51 percent to $6.04 billion from $12.3

WASHINGTON (Reuters) - The Federal Reserve held U.S. interest rates steady on Tuesday and showed little inclination to lower them soon, spurning calls for cuts from financial markets roiled by the bankruptcy of investment bank Lehman Brothers Holdings Inc (NYSE:LEH - News).

The central bank's unanimous decision left benchmark overnight rates at 2 percent, a level reached in April.

"Downside risks to growth and the upside risks to inflation are both of significant concern," the Fed said, surprising many analysts who thought recent market shocks would help policy-makers set aside earlier concerns on price pressures.

"To read their statement, you would never know the sky has fallen in on Wall Street," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "This statement is either very brave or very reckless. Not to acknowledge the catastrophes ... runs the very serious risk that the Fed will be seen as Nero, fiddling while Wall Street burns."

Investors had begun to bet this week that the Fed would lower rates to help settle financial markets upended by the bankruptcy of 158-year-old Lehman Brothers, the sale of investment bank Merrill Lynch (NYSE:MER - News) to Bank of America (NYSE:BAC - News), and a scramble for cash by insurer American International Group Inc (NYSE:AIG - News).

Stocks fell after the Fed's decision but later rose on a Bloomberg news report that the Fed was considering a loan package for AIG. The Dow Jones industrial average (DJI:^DJI - News) closed up 141