Fed injects $38 billion

By Tamawa Kadoya

NEW YORK (Reuters) - The U.S. Federal Reserve provided the banking system with $38 billion on Friday, the largest amount of liquidity since the days after the September 11 attacks six years ago, adding ample funds for the second day running as financial markets fretted over credit conditions.

The Fed also took the unusual step of making a rare statement after the first operation -- the first time it's done so since the September 11, 2001, terror attacks -- in an effort to calm investors' fears.

Before Wall Street's opening bell, the Fed infused $19 billion in a market operation that was conducted more than an hour before its usual time.

By mid afternoon, the Fed conducted two more cash injections -- $16 billion and $3 billion -- a highly unusual but not unprecedented occurrence for a Friday.

U.S. stock indexes sharply cut their morning losses after the Fed's second liquidity injection but losses accelerated after the third injection.

In its statement after Friday's first market operation, the Fed said it would provide liquidity as needed "to facilitate the orderly functioning of financial markets.

"In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets," it said.

The last time the central bank made a similar statement was after the September 11, 2001, terror attacks, when it also said it would do what was necessary to keep markets functioning normally. The Fed made a similar vow in October 1987 following a precipitous decline in U.S. stock markets.