Treasury raises Jan-March borrowing estimate

WASHINGTON (Reuters) - The Treasury said on Monday it expects to borrow about $156 billion of net marketable debt in the January-March quarter, about $23 billion more than it first estimated in October.

"The increase in borrowing is primarily the result of lower receipts and lower net issuances of State and Local Government Series securities," the Treasury said in a statement.

The Treasury is due to announce plans for sales of 10-year notes and 30-year bonds on Wednesday.

The economy has slowed considerably since the Treasury's last borrowing forecast in October, and the Congressional Budget Office said last week the federal budget deficit would rise this year as revenues fail to keep pace with spending growth.

However, a Treasury official said the lower estimate for the quarter's receipts is partly due to expectations that more tax refunds will be distributed electronically earlier in the tax filing season.

In the April-June quarter, when the Treasury takes in its highest tax receipts, it expects to pay down $122 billion of net marketable debt, assuming an end-June cash balance of $45 billion.

The borrowing estimates for both periods, however, do not include any impact of the estimated $150 billion economic stimulus package now under consideration by Congress.

The stimulus could involve distribution of around $100 billion in tax refund checks to individuals around May, according to an agreement last week between by the Bush administration and U.S. House of Representatives leaders.

In a statement to the Treasury Borrowing Advisory Committee, Treasury Assistant Secretary Phillip Swagel said U.S. economic growth was likely to remain sluggish through the first half of the year.

"While the economy is expected to continue to grow, the risks of a broader slowdown have increased," he said. "Financial markets have deteriorated considerably since the start of the year and credit conditions for households and businesses remain tight."

"Together with declining home prices, the drop in household wealth will have an adverse effect on consumer spending and business investment," he said, referring to the sharp drop in the U.S. stock market this month.

The slowdown partly caused revenue projections to be below expectations for the October-December quarter of 2007, in which the Treasury borrowed a net $87 billion in net marketable debt to finish the period with a $57 billion cash balance.

The Treasury had previously forecast net borrowing of $68 billion in the period to reach an end-December cash balance of $45 billion.

The Treasury official said issuance of the state and local securities known as "slugs" had dropped off considerably from levels early in 2007.

State and local bond issuers invest tax-exempt bond proceeds in Slugs until they are ready to use the funds, and increases in Slugs issuance decrease the need for Treasury to borrow via its normal marketable debt markets.

The decline in Slugs issuance has had the opposite effect and accompanies a general decline in municipal bond issuance in recent months.

(Reporting by David Lawder; Editing by Neil Stempleman)