WASHINGTON - COMMERCIAL banks and investment firms reduced borrowing from the Federal Reserve's emergency lending programme over the past week, although demand for the loans was still elevated.

The Fed's report, released on Thursday, showed commercial banks averaged $91.6 billion (S$140.3 billion) in daily borrowing over the past week. That was down from $95.4 billion (S$146 billion) in average daily borrowing logged over the week ended Nov 12.

For the week ending Wednesday, investment firms drew $50 billion.

That compared with $64.9 billion in the previous week. This category was recently broadened to include any loans that were made to the US and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch.

The Fed report also showed that its net holdings of 'commercial paper' came to $270.9 billion on Wednesday, up from $257.3 billion last week. Under the first of its kind programme started Oct 27, the Fed is buying mounds of the crucial short-term debt that companies use to pay everyday expenses.

The Fed has said about $1.3 trillion worth of commercial paper would qualify.

Squeezed banks and investment firms are borrowing from the Fed because they can't get money elsewhere. Investors have cut them off, moving their money into safer Treasury securities.

Financial institutions are hoarding whatever cash they have, rather than lend it to each other or customers. The lockup in lending has contributed to a sharp slowing in the overall economy.

Investment houses in March were given similar, emergency-loan privileges as commercial banks after a run on Bear Stearns pushed what was the nation's fifth-largest investment bank to the brink of bankruptcy.

The identities of commercial banks and investment houses that borrow are not released. Commercial banks and investment companies now pay 1.25 per cent in interest for the emergency loans. -- AP