Charles Schwab Corp , the largest U.S. online brokerage, is cutting its fees by about $4 per trade, a rare pricing change that could pressure rivals to follow suit.

Beginning January 19, all Schwab clients will pay $8.95 per online stock or non-Schwab exchange-traded fund (ETF) trade. Most clients now pay $12.95 per trade.

The change essentially gives less-active clients with smaller account balances the low fees now reserved for active, high-balance clients. There are extra fees for phone and broker-assisted trades.

With individual traders sluggish last month, and low interest rates continuing to bruise most discount brokerages, Schwab's surprise move could spark a price war.

If one (company) cuts commissions, chances are something's going to happen with one of the others, that's typically what's happened in the past, said Seth Dadds, an analyst at Baltimore-based equity research firm GARP Research.

It sends a message about (Schwab's) outlook for the market -- you're not going to cut commissions if you think (trading) volumes are going to go into a steep decline, Dadds added. I'm sure this is a market share play.

Schwab shares dropped 2.7 percent to $18.83 in midday Nasdaq trade. Shares of its closest publicly traded rival, TD Ameritrade Holding Corp , tumbled 5 percent to $18.58. E*Trade Financial Corp was unchanged.

Online trading fees have remained relatively steady for nearly five years, since the last big price war.

TD Ameritrade has charged all clients a flat rate of $9.99 per trade since 2006. A TD Ameritrade spokeswoman said the company had no plans to change prices, adding in an email, ...if in the future we see a need to change our approach, we would of course consider doing so.

E*Trade's base fee is $12.99 per trade, while Scottrade charges $7 per trade. Fidelity Investments, the private mutual fund giant, has a standard fee of $19.95 per trade.

Fees can vary depending on client assets and trading patterns.

Daily average trading activity at public online brokers fell as much as 10 percent from November to December, according to a Sandler O'Neill research note issued this week.

Meanwhile, low interest rates have forced Schwab, TD Ameritrade and others to waive fees on some managed funds, putting more pressure on company revenues.

Schwab said its fee cut was meant to make trading more affordable. It comes two months after the San Francisco-based company unveiled a line of index-tracking ETFs.

New managed ETF portfolios will be available January 19, the company added on Thursday.

After the past two years, our clients are thinking more than ever about their financial future..., Schwab Chief Executive Walter Bettinger said in a statement.

(Reporting by Jonathan Spicer; editing by John Wallace)