Fed to Continue Auctions

The Federal Reserve on Friday reported strong demand in its second auction of short-term credit from a new facility created to ease tight lending among banks and said it would continue the auctions "as long as necessary" to ease pressures on the market.

The Fed originally had committed to four auctions, two this month and two in January, through the temporary Term Auction Facility, an effort coordinated with partner central banks in Canada, England and Europe. After Thursday's second successful auction, however, it said it will continue biweekly auctions indefinitely.

Thursday's auction of $20 billion in 35-day credit drew $57.66 billion in bids from 73 banks, the Fed said. The interest rate on the facility, or stop-out rate, was 4.67%, slightly higher than Monday's 4.65%, but still less than the 4.75% rate at the Fed's discount window. The Fed loaned a total of $40 billion in the two auctions.

Bids at the stop-out rate were prorated at 73.40%, and resulting awards were rounded to the nearest $10,000, according to the Fed. Awarded loans will settle Dec. 27 and mature on Jan. 31.

The Fed's Board of Governors on Jan. 4 will set the size of auctions slated for Jan. 14 and 28. The auctions will start at noon.