UPDATE 1-US money market assets down in latest week -iMoneyNet

Wed Dec 19, 2012 3:48pm EST

* Total fund assets fall 1st time in five weeks

* Assets fall from highest level since February

* Institutional funds outflows leads week's drop

* Average tax-free fund yield dips to 0.01 percent

NEW YORK, Dec 19 (Reuters) - U.S. money market fund assets fell for the first time in five weeks as the rush of cash on bets on a coming end of a federal insurance program on large bank accounts might have tapered off, according to data released on Wednesday.

Money fund assets fell by $9.72 billion to $2.619 trillion in the week ended Dec. 18 after hitting their highest level since late February the previous week, the Money Fund Report said.

Analysts also attributed the recent surge in fund assets on traders preference to beef up their cash holdings and to reduce their bets on stocks and other risky assets.

Taxable money market fund assets fell by $12.44 billion to $2.341 trillion, while tax-free assets rose by $2.72 billion to $278.44 billion, according to the report, published by iMoneyNet.

The decline in fund assets stemmed from withdrawals by corporate treasurers and large cash managers. Institutional fund assets fell by $18.6 billion, which was mitigated by a $6.16 billion rise in retail fund assets, the iMoneynet data showed.

Yields on taxable money market funds were unchanged from the previous week at 0.02 percent, while the yield on tax-free money fell to 0.01 percent from 0.02 percent a week earlier, according to the report.

On Dec. 31 the Federal Deposit Insurance Corp was set to terminate its transaction account guarantee, known as TAG. The program insures bank deposits of more than $250,000, the amount the FDIC normally covers, in checking accounts that do not pay interest.

TAG was created in September 2008 during the height of the global financial crisis in a bid to help stabilize the banking system. It was meant to reassure depositors that their money was safe and to ensure that businesses and local governments had access to cash.

Last Thursday, the Senate failed to overcome a procedural challenge raised by Republicans against a bill to extend TAG for two years.

With the federal government's focus to reach a budget deal before year-end, there is almost no chance TAG will survive, analysts said.

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