Freddie bill sale draws lower demand than week ago

NEW YORK (Reuters) - Freddie Mac's (FRE.N) $3 billion bill sale on Monday drew weaker demand and interest rates rose compared with a similar sale a week earlier.

Its $3 billion in auctions on July 14, seen as the first test of the housing finance company's borrowing ability after sweeping steps by the United States to shore up confidence in government-sponsored enterprises Freddie Mac and Fannie Mae (FNM.N), drew stronger demand than had been expected.

Ongoing access to short-term funding is critical to maintain operations while the Treasury and Federal Reserve work on plans to approve greater borrowing abilities for the two troubled mortgage finance giants if needed.

The government has increasingly relied on Freddie Mac and Fannie Mae to stabilize the worst U.S. housing market since the Great Depression.

Fears about the GSEs' capital levels drove their shares down to 17-year lows this month. Both were up sharply early Monday, with Freddie rising 8.8 percent to $9.99 and Fannie jumping 23.5 percent to $16.55 on the New York Stock Exchange.

On Friday, Freddie Mac won approval from regulators to sell the stock needed to overcome mounting losses, paving the way for it to raise $5.5 billion to bolster its balance sheet.

Freddie Mac on Monday sold $1 billion of three-month bills due October 20, 2008 at a 2.540 percent rate, compared with 2.309 percent for the $2 billion sale of the same maturity on July 14.

In the July 7 auction of $2 billion three-month bills prior to the government rescue plans for Freddie Mac and Fannie Mae, the auction rate was 2.323 percent.

Freddie Mac on Monday sold $1 billion of six-month bills due January 20, 2009 at a 2.820 percent rate, compared with 2.496 percent for the same size sale of the same maturity a week earlier.