UPDATE 1-U.S. Fed balance sheet hits record in latest week

Thu May 20, 2010 4:51pm EDT

(Adds details from latest Fed data)

NEW YORK May 20 (Reuters) - The size of the U.S. Federal Reserve's balance sheet expanded to a record in the latest week on a jump in holdings of mortgage-backed securities, Fed data released on Thursday showed.

The Fed's balance sheet -- a broad gauge of its lending to the financial system -- climbed to $2.333 trillion in the week ended May 19 from $2.318 trillion in the week ended May 12.

Much of the weekly increase in the U.S. central bank's balance sheet came from a $21 billion rise in its ownership of mortgage securities guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae).

The Fed had committed to buy up $1.25 trillion in agency MBS and $175 billion in bonds issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank System.

These purchases were part of its quantitative easing adopted with the goal of helping the ailing housing market and holding down home borrowing costs in a bid to bring the U.S. economy out of the worst recession in 70 years.

The Fed ended its purchases of these securities at the end of March but has continued to take delivery on them.

While U.S. economic growth has returned since the third quarter, fears have intensified that the sovereign debt crisis in the euro zone could hurt the economic recovery and tighten credit conditions, analysts said.

So far, strain in the U.S. banking system has not emerged.

The Fed made direct loans to credit-worthy banks at a daily pace of $5.114 billion in the week ended Wednesday, a tad slower than the daily rate of $5.150 billion in previous week.

The Fed's "discount window" lending to riskier banks also slowed. These lower-tier banks borrowed at a daily rate of $400 million, compared with a $486 million pace in the prior week.

Despite anxiety over distress on European banks due to the region's sovereign debt crisis, the Fed said it provided no dollars to major foreign central banks via its currency swap lines in the latest week. For more, see [ID:nN20162027] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ U.S. Fed balance sheet graphic: link.reuters.com/buf92k ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

(Reporting by Richard Leong, Editing by Chizu Nomiyama)