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MONEY MARKETS-U.S. commercial paper outstanding falls

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(Reuters plans to discontinue New York money market reports asof Oct. 15 and fold coverage into daily U.S. Treasury reports.Significant money market developments will be reportedseparately. Please e-mail comments towilliam.schomberg@thomsonreuters.com)

(Adds U.S. commercial paper)

By Ellen Freilich

NEW YORK, Oct 11 (Reuters) - U.S. seasonally adjustedcommercial paper outstanding fell $10.2 billion in the weekended Oct. 10, according to data issued by the Federal Reserveon Thursday.

U.S. commercial paper outstanding, not seasonally adjusted,fell $10.7 billion in the week.

U.S. foreign bank commercial paper, not seasonally adjusted,rose $900 million.

Meanwhile, general collateral repo rates remained elevatedas $100 million in Treasury bill auctions settled on Thursdayand in anticipation of Monday's settlement of this week's set ofcoupon auctions.

The government sold a total of $66 billion in three- 10-30-year Treasuries this week on Tuesday, Wednesday and Thursday,respectively.

BAILOUT PROSPECTS KEEP SPANISH REPO RATES STABLE

Meanwhile, the cost of borrowing cash using Spanishgovernment bonds as collateral was little changed on Thursday asthe prospect of European Central Bank debt purchases offset theimpact of a downgrade of Spain's rating.

Standard & Poor's cut the country's rating to BBB-minus,with a negative outlook, just one notch above non-investmentgrade and in line with fellow agency Moody's, which is expectedto conclude its own rating review this month.

Usually, when debt is downgraded, rates in repo markets -where bonds are used as collateral to borrow cash - go up. Thatis because the price of the bond falls and the value of thecollateral is perceived as having depreciated.

However, the likelihood that Spain will eventually ask for abailout kept markets stable.

"The rates which people are actually lending at have notchanged much; (the S&P move) only brings it in line with Moody's... and the market is much more focused on whether they're goingto ask for a bailout or not," one repo trader said.

The one-week repo rate for trades using Spanish bonds ascollateral was unchanged at 0.15-0.16 percent, according totraders.

A well-bid Italian debt auction also helped increaseinvestors' appetite to take risks.

"Repo rates didn't move because in the short-term risk(sentiment) is still on and the Italian auction was fine," saidMatteo Regesta, rate strategist at BNP Paribas.

(Additional reporting by Marius Zaharia; Editing by PeterGalloway)

((ellen.freilich@thomsonreuters.com)(646-223-6309)(Reuters

Messaging: ellen.freilich.thomsonreuters.com@reuters.net))

Keywords: MARKETS MONEY/