Paulson says credit markets making progress

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson said on Tuesday that credit markets were making progress in working through turmoil and a wider government bailout was "absolutely not" needed.

In an interview with CNBC television, Paulson said credit issues that began in the subprime mortgage sector became more of a market liquidity problem due to the complexity and opaque pricing of many asset-backed securities.

"We've seen it evolve, but again, I look at it and I think we're making progress as we work through this," Paulson said.

Asked if a broader government bailout was necessary to restore confidence to U.S. credit and equity markets, Paulson replied, "Absolutely not. We're seeing real progress."

He said a year ago, markets were "ebullient" and risk was being mis-priced as lenders and investors pursued higher yields. Now, risk is being re-priced and market players are disclosing losses and raising new capital, but it will take a while "for the excesses to come out of the system."

Paulson repeated that he welcomes investments from sovereign wealth funds, which have recently invested in U.S. banks, providing new capital to offset losses from the credit turmoil. He said the Treasury-headed Committee on Foreign Investment in the United States will continue to look carefully at sovereign wealth fund investments.

"We haven't confronted an issue where we've had someone come in and talk about control (of a U.S. bank). If and when we do we'll look at that carefully," Paulson said.

He said he did not put too much stock in an uptick on Tuesday in the National Association of Home Builders' February index, saying he expects the housing sector to continue to show weak confidence numbers as it is the biggest downside risk for the economy.

The NAHB/Wells Fargo Housing Market index rose 1 point to 20 in February, but the gauge remained near historic lows. Readings below 50 mean more builders view market conditions as poor than as favorable.

(Reporting by David Lawder; Editing by Leslie Adler)