INSTANT VIEW 2-US Fed announces central bank coordination

NEW YORK (Reuters) - The U.S. Federal Reserve announced on Tuesday that it was taking coordinated action with other central banks to provide liquidity and also said it was lending up to $200 billion of Treasury securities to primary dealers.

Also, the Fed said dealers can use more types of collateral, including private label residential mortgages.

COMMENTS:

RUDY NARVAS, SENIOR ANALYST, 4CAST LTD, NEW YORK:

"It is pretty consistent with the Fed trying to be more creative with inter-bank lending markets tightening up since the beginning of January.

"The increasing of the term repos and also the increasing of the size of the TAF are consistent with a Fed trying to ease credit conditions. Also there were rumors today that the Fed might outright buy Fannie Mae and Freddie Mac securities, which was also putting pressure on the bond market, along with the narrowing of swap spreads and agencies.

"(Under the new facility) they can also buy the high-rated corporates and things like that. One of the things they are trying to accomplish is not just to increase liquidity but also decrease the risk premium on non-Treasury securities.

"There is a feeling that if they keep on doing things like this they could influence the pricing mechanism and also ease credit conditions.

"A lot of agency securities are illiquid not just because they are afraid to sell them -- at least the Fed is giving some sort of window to dump these things."

TOM BENTZ, ANALYST, BNP PARIBAS COMMODITY FUTURES INC., NEW

YORK:

"Oil is definitely reacting to the reversal of the dollar, on coordinated central bank liquidity action."

MARC CHANDLER, HEAD OF GLOBAL CURRENCY STRATEGY, BOWN BROTHERS

HARRIMAN, NEW YORK:

"The news has seen the dollar jump, equities rally and bonds sell-off. Despite reports that the Fed was soon to announce new measures, the market was caught leaning the wrong way.

"In the bigger picture, is unclear whether this will prove sufficient, but it does demonstrate the Fed's resolve. Although the swap lines and separate announcements by other central banks will cast an air of coordination around today's announcement, the fact is that the ECB and SNB have plenty of dollars to use of their own if they wanted to, which was the point made in Dec by at least one Fed official.

"Thus it is still a US-led operation."

ANDREW BRENNER, SENIOR VICE PRESIDENT, MF GLOBAL, NEW YORK:

"The Fed action is significant, well telegraphed and seems to be working. Treasuries are down one point, 2-years have gotten crushed and the 2/10 (curve) has flattened by 8 to 182. Agency spreads are in and mortgages tightening.

"With $200 billion announced last week this is another $200 billion. With $400 billion in liquidity we are now talking some real coin. We expect stocks to trade higher. Both Fannie and Freddie are already up in pre-market trading. Dollar has improved."

DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST WITH CHANNEL CAPITAL

RESEARCH, SHREWSBURY, NEW JERSEY:

The Fed announcement "first hit the Treasury market because it was the ultimate flight to quality, along with gold."

"The Treasuries are the most secure place to park your cash, but right now the market is perceiving it is safe to go out of there, almost across the board: to equities and I think to agency paper."

"The Fed was always referred to as being the lender of last resort and they are essentially saying we will lend for banks, or give them the ability to use agency paper as collateral."

GRAHAM SECKER, U.K. EQUITY STRATEGIST AT MORGAN STANLEY,

LONDON:

"The macro backdrop doesn't look pretty, sentiment looks bearish, but valuations are low. The authorities are reacting. This could well provide decent support to the equity market."

RON SIMPSON, DIRECTOR OF FX RESEARCH, ACTION ECONOMICS, TAMPA,

FLORIDA:

"Anything the Fed can do to help the credit market will help the dollar. We did see dollar/yen jump on the news and euro/dollar slip about 20 ticks.

"It's a step. At least, the Fed is being creative and working on the problems. I wouldn't be surprised if expectations for 75 basis points come off a little bit."

MICHAEL CHEAH, SENIOR PORTFOLIO MANAGER, AIG SUNAMERICA ASSET

MANAGEMENT, JERSEY CITY, NEW JERSEY:

"This Fed action is good for a day or two. There are three problems in the market. One is the price of money, then liquidity and counterparty risk.

"The Fed can do all it can in the first two areas by trying to reduce fed funds and the price of money. However, these moves are not going to mitigate the counterparty risk.

"Today's injection is not going to make prime brokers any less willing to call margins, or lend money. People are afraid of the counterparty risk. This is another government intervention that will create more harm than good."

THOMAS DI GALOMA, HEAD OF U.S. GOVERNMENT BONDS, JEFFERIES &

CO., NEW YORK:

"I think the Fed has come to the realization that additional measures are needed in place of just deep fed funds rate cuts, though more cuts are needed. But the previous rate cuts had not been as effective as the Fed hoped. They found out that alleviating the stress in the financial system is needed by taking the mortgages off the books of securities dealers.

"You have to surmise that maybe it got to a crucial stage where someone is on the brink of disaster.

"This is a much needed step. The next stage may be set up a government-guarantee entity like in the days of the savings-and-loan crisis to buy some of the bad mortgage assets which are not performing."