Fed Boosts Lending to Banks as Credit Rout Continues (Craig Torres)

  March 7 (Bloomberg) -- The U.S. Federal Reserve plans to increase its loans to banks this month to offset a deepening credit crisis threatening to tip the U.S. economy into a recession.

  The central bank increased to $50 billion each from $30 billion the amount intended for auctions of funds planned for March 10 and March 24. The Fed also said in a statement in Washington today that it will make $100 billion available through weekly 28-day repurchase agreements, where the central bank lends cash in return for assets such as Treasuries.

  The decision is the central bank's latest attempt to reduce the threat to the economy from banks curtailing loans to companies and households. Banks and securities firms have posted losses exceeding $181 billion since the start of last year as the impact of surging defaults on subprime mortgages rippled through world financial markets.

  ``Given what we have seen in terms of illiquidity in the financial markets in the last four or five days, this came right in time,'' Ajay Rajadhyaksha, head of fixed income strategy at Barclays Capital in New York, said in an interview with Bloomberg Television.

  Traders increased bets that the Fed will lower its benchmark interest rate by at least three quarters of a point this month after a government report showed the biggest job loss in five years, adding to evidence the economy is contracting. Odds of a full percentage-point reduction, to 2 percent, jumped to 26 percent from zero yesterday, futures prices showed.

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