UPDATE 1-U.S. commercial paper market hits speed bump

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By Walden Siew

NEW YORK Nov 5 (Reuters) - The U.S. commercial paper market contracted in the latest week, the first sign of a speed bump for short-term debt markets in the last three months, Federal Reserve data showed on Thursday.

For the week ended Nov. 4, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, fell by $61.7 billion to $1.315 trillion outstanding, from $1.377 trillion the previous week.

That's the biggest weekly drop since May, when the market contracted by $81 billion.

"If it continues, it shows a disruption in the upward trend in industrial output," said Tony Crescenzi, a portfolio manager with Pacific Investment Management Co in Newport Beach, California.

Still, "it's too early to say if this is a disruption of the broader trend," he said. "More than likely that's not the case, and there could be a technical explanation."

Asset-backed commercial paper outstanding fell by $28.0 billion after a drop of $5.6 billion the previous week, to stand at $515.0 billion this week, down from $543.0 billion a week earlier.

Unsecured financial issuance fell by $39.9 billion after a rise of $20.9 billion the previous week.

The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis emerged.

Before this week, the commercial paper market had gained for 11 straight weeks, the longest-running expansion for the market since mid-2007, before the credit crisis. (Reporting by Walden Siew; Editing by Kenneth Barry)