Pimco's Gross sees Fed holding key rate at 1 percent

NEW YORK (Reuters) - Bill Gross, the manager of the world's biggest bond fund, speaking after the Federal Reserve cut interest rates by a half percentage point on Wednesday, said the U.S. central bank was likely to hold its key rate at 1 percent for some time.

Gross, chief investment officer of Pacific Investment Management Co, or Pimco, told CNBC television that he expects the U.S. central bank to keep the key short-term lending rate at 1 percent for "an extended amount of time."

Gross spoke shortly after the policy-setting Federal Open Market Committee cut the fed funds target rate to 1.0 percent from 1.5 percent.

Gross said investors like Pimco are "buying what the government is buying," including agency mortgages, bank debt capital and preferred securities.

Separately, Gross told Reuters the common stocks of these banks and financial institutions "may suffer dilution through the issuance of warrants and convertible features."

The preferred shares, on the other hand, can be bought by investors at a yield of 10 to 12 percent, Gross said.

(Reporting by John Parry and Jennifer Ablan; Editing by Leslie Adler)