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(Corrects second paragraph to show number is $1.25 trillion)
NEW YORK, Jan 5 (Reuters) - The Federal Reserve is discussing re-entering the mortgage-backed securities market later this year if its buying power is needed to hold down interest rates, Market News said on Tuesday in a story citing Fed officials.
The $5 trillion agency mortgage-backed securities market may weaken when last year's biggest buyer, the Federal Reserve, ends its $1.25 trillion agency MBS purchasing program at the end of the first quarter of 2010.
Fed officials, however, "are prepared to contemplate changes if need be, depending on conditions in the economy, housing finance and in financial markets more broadly," Market News said in a story written by Steven Beckner.
"Among the options that has been discussed, say people in a position to know, is doing additional MBS purchases."
The Fed's program has helped keep 30-year mortgage rates near record lows, attracting buyers to the housing market as it struggles to exit its worst slump in decades.
When the Fed stops buying at the end of the first quarter, rate in that market are widely expected to rise, pulling mortgage rates higher as well.