UPDATE 4-BoE, Fed deny mortgage security buyout plan

(Adds ECB no comment)

By Sumeet Desai and Tim Ahmann

LONDON/WASHINGTON, March 22 (Reuters) - The Federal Reserve and Bank of England denied a report on Saturday that they were in talks over possibly using public funds to make mass purchases of mortgage-backed securities to ease the global credit crisis.

However, the Bank of England said it was considering a number of other, unspecified options to address the turmoil in financial markets, which has continued despite the injection by central banks of billions of dollars of liquidity and cuts in interest rates.

The European Central Bank had no comment.

The Financial Times, without citing sources, said central banks on both sides of the Atlantic were in talks about the feasibility of buying up mortgage-backed securities -- key financial instruments which have plunged in value in recent months, wreaking havoc on banks' balance sheets and shares.

"Central banks, including the Bank of England, have been looking at ways to ease the strain," a BoE spokesman said. "The BoE is not, however, among those reported today to be proposing schemes that would require the taxpayer, rather than the banks, to assume the credit risk."

"We can, however, confirm that we have been examining a number of other options. But it is too early to go into any detail," the spokesman said.

A senior Fed official said: "The Federal Reserve is not involved in discussions with foreign central banks for coordinated buying of MBS (mortgage-backed securities)."

The Financial Times had said the talks between central banks were at an early stage and part of a broader exchange on how to restore stability to financial markets.

It said the BoE appeared to be most enthusiastic to explore the idea; that the Federal Reserve was open to the idea in principle, but only as a last resort, and that the European Central Bank was less keen.

Central banks have so far been prepared to lend against mortgage-backed securities rather than buy them outright.

The securities have plunged in value amid a credit squeeze which was sparked by low quality mortgages in the United States, leading to a vicious circle of forced sales, falling prices and weakening balance sheets for banks.

Banks have written down more than $125 billion of assets since November, hammering their shares. [ID:nL13833338]

The DJ Stoxx European banks index .SX7P has fallen almost 40 percent since June.

Governments and central banks have made repeated attempts to restore order to financial markets. Britain has nationalised struggling mortgage bank Northern Rock (NRKx.L), Germany is overseeing the rescue of lender IKB (IKBG.DE) and the United States is presiding over a rescue of Bear Stearns BSC.N.

But markets remain jittery, with Credit Suisse (CSGN.VX) warning on Thursday it could report its first quarterly loss in five years and credit ratings agency S&P saying on Friday it was cutting its view on U.S. banks Goldman Sachs (GS.N) and Lehman Brothers LEH.N to "negative" from "stable". (Additional reporting by John Sinnott; Writing by Mark Potter and Peter Graff; Editing by Chris Johnson)