Fed Cuts Discount Rate By 0.25% To 3.25%, Takes Wider Range Of Collateral (Scott Lanman)

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March 16 (Bloomberg) -- The Federal Reserve reduced the rate on direct loans to commercial banks by a quarter-point and said it will allow primary dealers to borrow at the rate in exchange for a ``broad range'' of investment-grade collateral.

The central bank, in a statement today in Washington, also extended the maximum term of discount-window loans to 90 days from 30 days. The Fed approved the financing arrangement announced by JPMorgan Chase & Co. and Bear Stearns Cos. JPMorgan separately agreed to buy Bear Stearns for about $2 a share.

Fed Chairman Ben S. Bernanke is stepping up efforts to keep strains in financial markets from spiraling into a full-blown meltdown. Last week the central bank agreed to emergency loans to a non-bank, Bear Stearns, for the first time since the 1960s. Fed officials also announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities.

The Fed lowered the discount rate to 3.25 percent from 3.5 percent, narrowing the spread with the federal funds rate to a quarter point from a half point. From tomorrow, primary dealers will be able to borrow at the rate under a new lending facility, to be in place for at least six months, the Fed said.