UPDATE 2-U.S. Fed balance sheet grows as programs unwind

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NEW YORK Feb 4 (Reuters) - The U.S. Federal Reserve's balance sheet grew slightly in the latest week even as the central bank began to unwind the emergency measures it enacted in response to the global credit crisis.

The Fed's balance sheet liabilities -- a broad gauge of its lending to the financial system -- rose to $2.231 trillion on Wednesday from $$2.229 trillion a week ago, Fed data released on Thursday showed.

The balance sheet was still below the record of $2.274 trillion set on Jan 13.

The week's modest increase in the balance sheet resulted from more lending to banks and certain financial firms and from greater holdings of securities issued and guaranteed by federal mortgage agencies Fannie Mae FNM.N, Freddie Mac FRE.N and the Federal Home Loan Bank system.

The Fed's holdings of mortgage agency debt grew to $164.66 billion on Wednesday from $163.67 billion a week ago, while its ownership of agency mortgage-backed securities edged up to $970.33 billion on Wednesday from $969.73 billion a week earlier.

The purchases on these securities have been the pillar of the Fed's quantitative easing policy, which was adopted to hold down home loan costs with the goal of stimulating the economy. The Fed said last month it will stop buying agency and MBS at the end of March.

As for financing activity, the Fed extended more direct loans to banks and other financial firms in the latest week.

Discount window borrowing averaged $88.99 billion a day in the week ended Feb. 3, compared with a $87.38 billion daily rate in the week ended Jan. 27.

But the Fed's overnight lending to credit-worthy banks averaged $14.77 billion a day in the week ended Feb. 3, compared with a daily rate of $14.86 billion the prior week.

EMERGENCY MEASURES END

The increases in lending and securities holdings were mitigated by dwindling demand for the Fed's emergency programs created to combat the credit crisis.

After its January policy meeting, the central bank said it would close the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; the Commercial Paper Funding Facility (CPFF); the Primary Dealer Credit Facility, and the Term Securities Lending Facility and liquidity swap lines with other foreign central banks on Feb. 1.

Its remaining funding programs are slated to end by June, as credit conditions have improved.

The CPFF, which had served as a backstop for the commercial paper market, had $8.67 billion in assets on Wednesday, compared with $8.66 billion a week ago.

The Fed's arrangements with other central banks to provide dollars to overseas banks averaged $100 million per day in the week ended Wednesday, compared with a daily rate of $175 million last week. (Reporting by Richard Leong; Editing by Leslie Adler)