CORRECTED-Two pct of FHLB investment securities downgraded

(Corrects to make clear in headline that investment securities were downgraded, not securities issued by FHLB)

WASHINGTON, Aug 13 (Reuters) - The Federal Home Loan Bank system has seen 2 percent of its investment securities downgraded in the six weeks ending Aug. 8, the mortgage finance system's regulator said on Wednesday.

Another 2 percent of the $191.8 billion in total investment securities held by the FHLB were placed on review for a possible downgrade but not cut, according to a statement from the Office of Finance.

"More than 98 percent of the $191.8 billion in total investment securities were rated AAA/Aaa or the short-term equivalent at June 30, 2008," the statement read. "At the same date, approximately 4 percent of the $191.8 billion of total investment securities were on negative watch."

The Federal Home Loan Bank system is a cooperative of twelve regional lenders established by the government in the 1930s to increase home lending.

The system is supervised by the federal government and adheres to some of the most conservative lending standards and strongest collateral demands in mortgage finance.

As credit markets have tightened over the last twelve months, many large banks with access to the FHLB system have increased their borrowing.

At the end of June, the system held investments of $334.4 billion including $142.7 billion in short-term instruments -- federal funds sold, deposits and securities purchased under agreements to resell -- and $168.7 billion in mortgage-backed securities.

The remaining $23.0 billion consisted primarily of GSE debt securities, commercial paper, and state or local housing agency obligations, the regulator said. (Reporting by Patrick Rucker; Editing by Gary Crosse)