July 3 (Bloomberg) -- The Federal Reserve trimmed the estimated value of Bear Stearns Cos. assets it took on last month and said lending to securities dealers fell to zero for the first time since it began extending the credit in March.

The central bank said today in Washington the ``fair value'' of the Bear Stearns assets was $28.9 billion as of June 26, a $1.1 billion drop from the total in March. The Fed also reported that it had no direct loans outstanding to bond dealers as of yesterday under a program aimed at easing the credit crisis.

Today's lending figures indicate that Wall Street is using the Fed only as an emergency backstop, rather than as a continuing source of funding, said Macroeconomic Advisers LLC senior economist Brian Sack. Treasury Secretary Henry Paulson warned dealers and investors this week they shouldn't operate as if Fed funds were ``readily available.''

Primary Dealer Credit Facility figures ``to date have been clouded by the ongoing financing needs of this Bear Stearns collateral,'' said Washington-based Sack, a former Fed research manager. ``It was not clear until today what the underlying demand for credit from the PDCF was.''

The Fed loaned $28.8 billion to a company formed to buy the investments, which in March included debt backed by mortgages and other items JPMorgan Chase & Co. deemed too risky when taking over Bear Stearns.

`Unusual' Circumstances

The Fed in March said the PDCF would be in place for at least six months. The central bank used authority under the law allowing such emergency loans in ``unusual and exigent circumstances.''

The Fed gave the fair-value estimate of Maiden Lane LLC's holdings as part of its weekly report on its balance sheet today. The central bank will provide quarterly updates on the portfolio's value. Maiden Lane is being counted on the balance sheet of the New York Fed, and was named after a Manhattan street that borders the bank.

JPMorgan is absorbing the first $1.15 billion of any losses realized on the holdings. The Fed said today that its loan outstanding remains at $28.8 billion, showing that Maiden Lane has yet to start paying off the debt.

JPMorgan in March asked for the Fed's help in financing ``a specific pool of assets'' it judged ``added significant uncertainty to the level of risk it would assume,'' minutes of Fed officials' March discussions showed on June 27.

Commercial Banks

Separately in today's report, the Fed said discount-window borrowing by commercial banks rose.

Credit extended to commercial banks rose by $159 million to a daily average of $14.9 billion.

The Fed's loans to primary dealers of U.S. Treasuries dropped by $4.4 billion to a daily average of $1.7 billion in the week ended July 2. The balance of credit outstanding to securities firms declined to zero as of yesterday, from $1.7 billion a week earlier.

Fed holdings of U.S. Treasury securities increased $65 million for a daily average of $478.8 billion. The central bank had about $740 billion of Treasuries at the start of 2008.

The central bank hired BlackRock Inc. to manage and sell the holdings of the former Bear Stearns, which was absorbed by JPMorgan in May. Bear Stearns valued the assets on March 14 at ``approximately $30 billion,'' New York Fed President Timothy Geithner said April 3.

`Orderly Market'

The Fed is valuing the portfolio in accordance with accounting guidelines that call for an estimate based on sales in an ``orderly market,'' rather than a hypothetical forced liquidation. The value doesn't necessarily reflect what the securities would fetch if Maiden Lane tried to sell today.

When the Fed agreed to the Bear Stearns transaction on March 16, policy makers also opened lending to other securities firms. That facility, and a $13 billion temporary loan to Bear Stearns after it warned it faced bankruptcy, constituted the first Fed credit to nonbanks since the Great Depression.

The Fed's loan carries the rate charged to commercial banks at the discount window, currently 2.25 percent.

The debt in March included commercial mortgage-backed securities, home loans and collateralized bond obligations, the central bank said in April. None of the securities were rated lower than BBB- by any of the three largest credit-rating companies, the New York Fed said April 3. Debt rated below BBB- has non-investment grade, or junk, status.

Market `Deterioration'

Today's valuation probably reflects ``ongoing deterioration in these markets,'' said Sack of Macroeconomic Advisers. In addition, it may reflect more-extensive research into the securities' values, he said.

The central bank has declined to provide details on the securities and isn't planning to disclose changes in the makeup of the portfolio. The asset mix may change to include securities that weren't in the original pool.

Fed Chairman Ben S. Bernanke said April 3 that the Fed has ``reasonable comfort that if we can sell these assets over a period of time that we will recover principal and interest for the American taxpayer.''

The Fed also reported that the M2 money supply rose by $3.6 billion in the week ended June 23. That left M2 growing at an annual rate of 6.4 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.

Money Supply

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 fell by $2.1 billion. Over the past 52 weeks, M1 declined 0.3 percent. The Fed no longer publishes figures for M3.

There was one net miss, on July 1, when the ``float was higher than expected, which resulted in an increase in reserves,'' the Fed said.

A net miss occurs when the actual reserve level in the banking system diverges from the Fed's projections for a day by $2 billion or more. If the level is outside expectations, the federal funds rate can deviate from the target.

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

Last Updated: July 3, 2008 18:11 EDT