Central banks step up efforts to slow credit crisis

By Richard Leong and Krista Hughes

NEW YORK/FRANKFURT (Reuters) - Wall Street dealers' demand for cash from the Federal Reserve mushroomed in the latest week, but they were less eager on Thursday to trade in tainted debt for high-quality Treasuries, in a sign that immediate funding needs continue unabated.

The latest evidence of turbulence in global money markets followed actions by European central banks to help lenders who scrambled to meet quarter-end funding needs. The Swiss and British central banks added funds to ease pressure on high interbank lending rates.

In the run-up to the end of the quarter, Wall Street firms favored the Fed's other credit programs, which offer cash rather than low-risk Treasuries for them to borrow money in the open market, analysts said.

Dealers more than doubled their direct borrowing from the Fed to $32.92 billion a day in the latest week from a week earlier, according to Fed data released on Thursday.

Meanwhile, Wall Street demand at the debut of the term securities lending facility auction, or TSLF, paled in comparison. TSLF's bid-to-cover ratio was 1.15, meaning the amount of dodgy mortgage securities pledged by dealers for the $75 billion Treasuries offered by Fed was roughly equal.

Analysts and investors were mildly baffled by the tepid showing, with many concluding that credit tightness while still prevalent may not be as acute as feared.

"The low bid-to-cover would lead me to believe there isn't an urgent need," said Bret Barker, a portfolio manager at Metropolitan West Asset Management in Los Angeles. "Brokers (primary dealers) may have used the PDCF, or primary dealer credit facility, to get cash rather than use this facility (TSLF)."

The latest Fed efforts come in the wake of the near-collapse of Bear Stearns Cos (BSC.N: Quote, Profile, Research) and an elevated reluctance by banks to lend to each other given the unknowns of Wall Street's balance sheets.