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UPDATE 3-Fed provides massive liquidity injection to calm markets amid signs of stress

Jonnelle Marte

of stress@ (Updates with analyst quotes, background, market reaction)

March 12 (Reuters) - The Federal Reserve intervened to stem a market meltdown on Thursday with a dramatic injection of cash that some analysts say could point to more aggressive action from the central bank to stimulate the economy and stabilize the financial system.

The New York Federal Reserve said it will make $1.5 trillion available for overnight lending markets this week and start purchasing a broader range of U.S. Treasury securities as part of its monthly purchases, a shift that signals it could deploy crisis-era tools sooner than planned.

"The Fed is likely to do more soon, including cutting rates to likely zero," Ebrahim Rahbari, chief currency strategist for Citi, said in a note to clients Thursday.

The central bank offered $500 billion in a three-month repo operation on Thursday and will offer an additional $500 billion in one-month repo and $500 billion in three-month repo loans on Friday.

Notably, the Fed is also changing the maturities of the Treasury securities it purchases monthly to increase reserves. Starting on Friday, the central bank will buy across a full range of short- and longer-term assets to match the composition of Treasury securities outstanding, including coupons, bills, Treasury Inflation-Protected Securities and Floating Rate Notes.

Until now, the Fed had focused its purchases on short-term Treasury bills, a move meant to emphasize that its purchases and gradual balance sheet expansion was part of a technical effort to increase liquidity - not the "quantitative easing" used to fight the 2007 to 2009 financial crisis.

The broader range of maturities, however, edges the Fed back toward those sorts of crisis-era efforts.

"That's basically QE," said Tim Duy, a professor of economics at the University of Oregon. "If you are going the entire curve, you are definitely doing something different" from just buying bills.

The changes were made at the direction of Fed Chair Jerome Powell, in consultation with the Fed's policymaking panel, the New York Fed said. U.S. stock markets briefly cut losses after the Fed announced the adjustments, before resuming a sharp selloff.

(Reporting by Jonnelle Marte, Ann Saphir and Howard Schneider; Editing by Dan Grebler and Andrea Ricci)