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UPDATE 1-U.S. Fed balance sheet shrinks on fewer MBS

(Adds details from latest Fed data)

NEW YORK, March 4 (Reuters) - The U.S. Federal Reserve’s balance sheet shrank slightly in the latest week due to a decline in its holdings of mortgage-related securities, Fed data released on Thursday showed.

The Fed’s balance sheet liabilities -- a broad gauge of its lending to the financial system -- slipped to $2.262 trillion on Wednesday from $2.269 trillion last week but was still not far below its record of $2.274 trillion set on Jan. 13.

The Fed's holdings of mortgage-backed securities backed by U.S. housing finance agencies Fannie Mae FNM.N and Freddie Mac FRE.N fell to $1.027 trillion on Wednesday from $1.033 trillion a week earlier.

But the central bank’s ownership of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank System rose to $167.51 billion from $166.53 billion a week ago.

At the end of March, the Fed will complete its mortgage securities purchases, the pillar of its quantitative easing program that was adopted to hold down home borrowing costs in a bid to revive the battered housing sector.

The Fed has committed to buy about $175 billion of agency debt and $1.25 trillion of agency MBS.

As the Fed’s overall securities holdings retreated from a week earlier, its direct overnight lending to top-rated banks slowed from last week.

Primary credit via the Fed’s discount window averaged $13.773 billion a day in week ended Wednesday. This was slower than the average daily pace of $13.960 billion last week. (Reporting by Richard Leong; Editing by James Dalgleish)

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