April 3 (Bloomberg) -- The Federal Reserve's cash loans to securities firms rose 16 percent to $38.1 billion over the past week, as Wall Street dealers took greater advantage of the new tool designed to ease strains in financial markets.

Separately, direct lending to commercial banks through the traditional discount window rose about 12-fold, or by $6.46 billion, in the week ending yesterday, to a daily average of $7.01 billion.

Other credit extensions including loans to facilitate JPMorgan Chase & Co.'s purchase of Bear Stearns Cos. showed a zero balance as of yesterday, according to the Fed's weekly balance sheet. The report listed loans to Wall Street firms under a plan announced March 16 to alleviate a cash shortage.

The central bank's Primary Dealer Credit Facility allows Wall Street banks to borrow money overnight at a 2.5 percent interest rate, the same charged to commercial banks. Fed Chairman Ben S. Bernanke said in congressional testimony this week that the program and others have helped alleviate some of the strains in financial markets.

The dealer program and the Bear Stearns loans represent the Fed's first extensions of credit to non-banks since the Great Depression.

Loans Outstanding

The average daily loans through the primary-dealer program rose by $5.2 billion in the second full week of operation, the Fed said. As of yesterday, $34.4 billion of the overnight loans were outstanding with Wall Street firms, while commercial banks had $10.3 billion of discount-window loans, the Fed reported.

The central bank has said the dealer loans will be available for at least six months. Bernanke told lawmakers the program will end at some point.

The Fed's decision to be lender of last resort to the 20 primary dealers of government debt came two days after the central bank's financing to Bear Stearns through JPMorgan.

On March 18, the Fed cut the discount rate by 0.75 percentage point to 2.5 percent, two days after reducing it by a quarter point. The more closely watched U.S. benchmark rate, the federal funds rate, was cut last week to 2.25 percent.

The Fed's holdings of U.S. Treasury securities fell by a daily average of $39.9 billion to $589.1 billion. That's down from $713.4 billion four weeks ago.

Securities Lent

The central bank gave a breakdown of securities lent to dealers, saying $21.3 billion in an overnight facility were collateralized by Treasuries, while $64.3 billion in a term facility were collateralized by Treasuries, federal agency debt, and ``highly rated'' private mortgage-backed debt.

The Fed also reported that the M2 money supply rose by $32.2 billion in the week ended March 24. That left M2 growing at an annual rate of 6.5 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market mutual funds.

During the latest reporting week, M1 rose by $11.8 billion. Over the past 52 weeks, M1 declined 0.3 percent. The Fed no longer publishes figures for M3.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net

Last Updated: April 3, 2008 16:39 EDT