UPDATE 1-US Fed to start small reverse repos Wed-NY Fed

(Adds details)

NEW YORK, June 7 (Reuters) - The U.S. Federal Reserve will begin a series of small-scale reverse repurchase agreements on Wednesday in preparation for the eventual possibility of withdrawing liquidity from the monetary system, the New York Fed said on its website on Tuesday.

The first of the reverse repurchase agreements on Wednesday will involve only the expanded repo counterparties announced on May 23, while a second set of operations will be open to all eligible reverse repo counterparties, the New York Fed said.

In a reverse repo the New York Fed sells securities to financial firms for a set period, temporarily draining excess reserves from the financial system.

The operations "have been designed to have no material impact on the availability of reserves or on market rates," the New York Fed said in a statement.

"Specifically, the aggregate amount of outstanding transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future," the New York Fed said.

The New York Fed on May 23 added 32 new money market funds to its roster of counterparties it could eventually tap to drain cash from the financial system.

On May 24, the New York Fed laid out the criteria for Fannie Mae (FNMA.OB), Freddie Mac (FMCC.OB) and other government-sponsored entities, or GSEs, to become counterparties it could tap to help drain the $1.5 trillion in excess reserves from the banking system.

Reverse repos are one of the tools that the Fed has said it can use to tighten monetary policy when needed to help prevent inflation. (Reporting by Chris Reese; Editing by Padraic Cassidy)