Oct. 29 (Bloomberg) -- The interest rate the Federal Reserve is willing to accept for 90-day commercial paper fell as investors awaited word on whether the central bank will lower its benchmark lending rate today to stimulate the economy.

The commercial paper rate declined 0.05 percentage point to 2.84 percent, including the 1 percentage point unsecured credit surcharge, according to data compiled by Bloomberg. The yield for commercial paper backed by assets such as mortgages and auto loans fell the same amount to 3.84 percent. The rates are set under the Fed's Commercial Paper Funding Facility and are available on CPFF.

Futures traders expect the Fed to slash its key interest rate at least half a percentage point today to 1 percent, likely reducing borrowing costs for companies. The Fed has already cut the benchmark rate from 5.25 percent in the past 13 months and created six lending programs channeling more than $1 trillion into the financial system.

Regulators created the commercial paper facility three weeks ago to jumpstart the short-term corporate IOU market, which began to freeze up last month. Commercial paper is used by companies to finance daily expenses like payroll and rent.

Sales of commercial paper due in more than 80 days totaled a record $67.1 billion on Oct. 27, its first day, and $41.6 billion yesterday, compared with a daily average of $6.7 billion last week, according to Fed data. The central bank probably absorbed about $60 billion of the total on the first day, according to Adolfo Laurenti, a senior economist at Mesirow Financial Inc. in Chicago. The seasonally adjusted amount of U.S. commercial paper outstanding was $1.45 trillion as of Oct. 22.

Lehman Brothers

The commercial paper market seized up on Sept. 15, when Lehman Brothers Holdings Inc. filed for bankruptcy. General Electric Co., the biggest buyer of commercial paper, money-losing auto finance and home-loan lender GMAC LLC and New York-based Morgan Stanley are among several dozen companies that have signed up for the program, which was announced on Oct. 7.

Lehman's bankruptcy filing caused the market to lock up, preventing many borrowers, particularly financial companies, from selling anything but overnight paper.

Quoted rates on 90-day commercial paper, which matures in 270 days or less, fell 0.07 percentage point today to a five-week low of 3.12 percent, according to yields offered by companies and compiled by Bloomberg. Rates on the highest-ranked commercial paper due in 30 days dropped 0.8 percentage point to 2.94 percent, about the lowest in four years.

Overnight rates fell 0.28 percentage point to 0.5 percent, the lowest on record.

The Fed's 90-day unsecured commercial paper rate is 1.84 percent and is comprised of the overnight indexed swap rate plus 1 percentage point. Companies that don't post collateral must pay an additional 1 percentage point.

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

Last Updated: October 29, 2008 10:48 EDT