Dec. 6 (Bloomberg) -- The U.S. asset-backed commercial paper market fell the most in five weeks, extending a four-month slump, as some structured investment vehicles began restructuring to avoid collapse and $105 billion of SIV debt was placed on review.

Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other holdings fell $23 billion, or 2.8 percent, to a seasonally adjusted $801.2 billion for the week ended Dec. 5, the Federal Reserve in Washington said today. The market has shrunk $394 billion, or 33 percent, since August.

The market dropped to the lowest in more than two years as Moody's Investors Service said it may downgrade the debt of 20 SIVs after the average net asset value of the funds declined to about half of what it was in June. Whistlejacket Capital Ltd., the SIV managed by Standard Chartered Plc, reduced its assets by 40 percent. Slumping values prompted pension funds in Florida and Montana to stop buying the short-term debt.

``There is continuing pressure,'' said Mary Beth Fisher, an interest-rate strategist at UBS AG in Stamford, Connecticut. ``You're going to look for funding anywhere else before you try to roll that paper.''

Interest rates on 30-day asset-backed commercial paper jumped 22 basis points today to 5.94 percent, the highest in more than two months, Bloomberg data show. The yield rose to 70 basis points more than the one-month Libor rate, the biggest gap on record. In the first half of 2007, the rate was on average 5.5 basis points narrower than Libor. A basis point is 0.01 percentage point.

``It makes it incredibly expensive,'' Fisher said.

Commercial Paper

The broader commercial paper market fell $10.2 billion in the most recent week to $1.84 trillion, according to the Fed data. Companies typically sell commercial paper, which usually matures in three months or less, to help pay for day-to-day expenses including payroll and rent.

The market for asset-backed commercial paper had shown signs of stabilizing three weeks ago after falling by less than $600 million, the smallest contraction since the declines began in August. Last week, it fell $11.6 billion. The market has shrunk from an Aug. 8 peak of $1.2 trillion.

The declines may force the Federal Reserve to cut its benchmark borrowing rate further when it meets next week, said Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California. The Fed lowered the target rate 50 basis points in September and another 25 basis points in October.

`Giant Stress Test'

``As the commercial paper market shrinks by hundreds of billions a month, central banks worldwide are facing a giant stress test of the modern-day shadow banking system,'' Gross wrote on the company's Web site on Dec. 5.

Buyer reluctance to invest in securities tied to subprime mortgages shut SIVs such as Cheyne Finance and Rhinebridge Plc out of the market, leaving them unable to refinance their paper.

Banks and hedge funds set up SIVs to issue short-term debt and use the money to invest in longer-term assets including bonds and mortgage-backed securities.

SIV holdings have fallen more than $100 billion since July to $298 billion as the companies were unable to borrow, according to Moody's.

To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net

Last Updated: December 6, 2007 15:29 EST