UPDATE 1-U.S. Fed's balance sheet grows 8 weeks in a row

(Recasts; adds details on latest weekly Fed data)

NEW YORK, Sept 24 (Reuters) - The U.S. Federal Reserve's balance sheet grew for an eighth straight week stemming from the central bank's ongoing purchases of Treasuries and mortgage securities, Fed data released on Thursday showed.

While the U.S. central bank's mortgage purchases will continue into early 2010, the Fed said on Thursday it will scale back its finance programs created to fight the credit crisis.

The Fed's balance sheet liabilities -- a broad gauge of its lending to the financial system -- increased to $2.141 trillion on Wednesday, a fresh four-month high, from $2.125 trillion a week ago.

The Fed's holding of mortgage-backed securities rose to $692.595 billion on Wednesday from $685.056 billion a week earlier, while its Treasuries ownership increased to $765.63 billion from $759.80 billion a week earlier.

On Wednesday, the Fed said after a two-day policy meeting it is pledging into early next year to buy $1.25 trillion in mortgage-backed bonds and up to $200 billion in debt issued by U.S. mortgage agencies.

The Fed had previously said its Treasury purchase program will end in October. It has nearly fulfilled its commitment to purchase of $300 billion in U.S. government bonds.

The Fed's asset purchases aim to hold down long-term borrow costs in an effort to revive economic growth.

The asset growth on the Fed's balance sheet has been mitigated by declining usage of its emergency funding programs, as conditions in private credit markets have improved since the demise of U.S. investment bank Lehman Brothers a year earlier.

Overnight direct loans to banks via the Fed's discount window -- which decline with less credit stress -- averaged $111.07 billion per day in the week ended Sept. 23, down from $111.49 billion a day in the prior week.

Primary credit borrowings averaged $28.19 billion a day in the week ended Wednesday, lower than the daily rate of $28.68 billion the previous week.

The Fed's liquidity swap lines with foreign central banks to provide dollars averaged $59.12 billion per day in the latest week, down from $61.101 billion per day in the prior week's average, according to Fed data.

The Fed, European Central Bank, Bank of England and Swiss National Bank said on Thursday they will reduce their lending of dollars overseas. For more, see [ID:nN24416515]

The Fed's Commercial Paper Funding Facility assets totaled $42.44 billion on Wednesday, down from the prior week's $42.97 billion.

The recent revival of the U.S. commercial paper market -- a critical source of short-term capital for companies to finance inventories and to pay workers -- has intensified the shrinkage of this Fed backstop.

This credit sector grew for a sixth consecutive week to $1.212 trillion, albeit far below the $2.2 trillion in August 2007 when the global financial crunch began. [ID:nN24319055]