WASHINGTON, May 25 (Reuters) - The Federal Reserve could cut the rate it charges the European Central Bank for dollar swaps to spur the flow of dollars to banks in Europe if strains from the European debt crisis increase, the Wall Street Journal reported on Tuesday.
Officials at the Fed Board of Governors in Washington and the New York Federal Reserve Bank declined to comment on the newspaper's report, which did not source the information.
Financial markets were awash with rumors on Tuesday that the Fed and ECB could take further steps to bolster market liquidity in Europe, which some market participants speculated could be lower swap rates.
The Fed charges 1 percentage point above the Overnight Indexed Swap (OIS) rate, an index of anticipated central bank rates, for transactions using the swap lines.
Hundreds of billions of dollars flowed through the Fed's dollar swap lines during the global financial crisis.
St. Louis Federal Reserve Bank President James Bullard earlier on Tuesday said the Fed's newly reopened currency swap lines with European central banks had seen scant use to date, evidence that current financial strains pale in comparison to the market turmoil in late 2008.
The Wall Street Journal said, without attribution, that the Fed could cut the interest rate to encourage more borrowing and ease some of the financial strain on foreign banks in need of dollars.
With worries rising that the European debt crisis could lead to another financial market freeze like in 2007-2009, the Fed may consider cutting the cost of using the swap lines as "a primary option," the Journal said. (Reporting by Mark Felsenthal; Editing by Neil Fullick)