CORRECTED-UPDATE 2-Repo rate steady before year-end

(Corrects overnight repo number in seventh paragraph)

Dec 30 (Reuters) - The cost to borrow funds in the U.S. overnight repurchase agreement market (repo) was steady on Monday ahead of the crucial year-end period when banks and investors reduce risk taking.

The New York Federal Reserve has been injecting liquidity into the repo market to reduce the chance of funding stress, after a flare-up in September sent the cost of overnight loans as high as 10%, more than four times the Fed’s rate at the time.

The Fed’s repo operations, however, are made only with major dealers, with the banks in turn passing liquidity on to their clients.

This could lead some clients struggling to raise funds over the year-end period if banks cut back lending.

There were no initial indications of stress on Monday, as the overnight cost of obtaining loans backed by Treasuries was steady at 1.55%.

The Fed’s Term and overnight repo operations saw solid demand, though were below the maximum offering of funds available.

An overnight operation had $30.80 billion in bids and a 15-day operation saw $8.30 billion in bids.

“Repo is still at quite large dollar amounts for the year-end, and that’s partly because the Fed has accommodated so much, people have not had to cut back as much as they normally would,” said Jim Vogel, an interest rate strategist at FHN Financial in Memphis, Tennessee.

Forward repo markets are pricing overnight loans for year-end at around 2.50%, 95 basis points higher than the current rate at 1.55%, Vogel said.

That is in the same general region as previous years, indicating that “the market’s operating fairly close to normal,” Vogel said. (Reporting by Karen Brettell; Editing by Megan Davies, Catherine Evans and Nick Zieminski)