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WASHINGTON, Feb 2 (Reuters) - A majority of banks in the United States tightened lending standards in recent months even as many received money from the government's $700 billion financial rescue program, a Federal Reserve survey released on Monday showed.
The Fed's January survey of senior loan officers found, however, that the percentage of U.S. banks and U.S. branches of foreign banks tightening loan standards dropped a bit since the last survey in October, a hint the sharp deterioration in credit availability was abating.
"The net fractions of respondents that reported having tightened their lending policies on all major loan categories over the previous three months stayed very elevated," the central bank said.
"Relative to the October survey, these net fractions generally edged down slightly or remained unchanged," it said, adding that demand for loans from both businesses and households continued to weaken.
A surge in U.S. mortgage defaults has saddled the global banking system with bad debts and banks, suffering big losses, have recoiled from lending.
To ease the crisis, the U.S. Congress in October approved a $700 billion program to bail out out the financial sector. About half of that money has been spent or pledged, but lending channels remain jammed, angering lawmakers, who think banks receiving money need to do more to step up their lending.
The Fed said about 65 percent of domestic banks tightened standards on commercial and industrial loans to large and middle-market firms since October, compared with an 85 percent response rate in the prior survey. While the figure came down, it was still above the previous peaks in 1990 and 2001.
A majority of U.S. branches of foreign banks also tightened business lending terms.
"All domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook as a reason for tightening their lending standards and terms on (commercial and industrial) loans over the past three months," the Fed said.
It said banks also cited a reduced tolerance for risk and industry-specific problems to explain the tighter standards.
Only 25 percent of respondents to the survey said a deterioration in the bank's capital position contributed to the tightening, down from 40 percent in October.
About 60 percent of banks said they tightened loans for credit cards and other consumer loans, about the same percentage as those tightening in October.
About 45 percent of domestic banks said they tightened standards for prime home mortgage borrowers, down from 70 percent in October. Only 10 percent of banks said demand for such loans had eased, sharply lower than the 50 percent who cited reduced demand in the prior survey. (Reporting by Corbett B. Daly; Editing by Dan Grebler)