Fed in fresh $20bn credit auction

http://news.bbc.co.uk/go/rss/-/1/hi/business/7156279.stm

Version 0 of 1.

The US Federal Reserve has auctioned off a further $20bn (£9.9bn) of credit as it seeks to ease financial markets stunted by the global lending squeeze.

The latest credit issue was once again heavily oversubscribed, with 73 bidders requesting a total of $57bn in funds.

The auction is the second of four planned over the coming weeks as the Fed acts in concert with other leading central banks around the world.

Banks are unwilling to lend to each other because of the US housing crisis.

'Elevated pressures'

As losses from investments tied to risky sub-prime debt mount, banks are sitting on their cash until a fuller picture of the financial damage emerges.

The Fed, the European Central Bank and the Bank of England have been acting in unison to inject liquidity into the money markets amid fears that a prolonged stasis in lending could cause have serious consequences for the global economy.

Friday's auction comes on the heels of a similar $20bn credit issue completed on Wednesday.

The Fed said it would conduct biweekly credit auctions "for as long as necessary to address elevated pressures in short-term funding markets".

Future auctions will take place on 14 and 28 January.

By acting decisively, policymakers hope to force inter-bank lending rates down and make institutions more comfortable about doing business with each other.

Friday's funds were lent at a rate of 4.67%, at the high end of market expectations, a sign analysts argue of the continuing severity of the liquidity shortage.