Paulson applauds actions to aid market stability

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson said on Sunday he supported this weekend's actions by market participants, the Federal Reserve and the Securities and Exchange Commission to strengthen and enhance financial market stability.

Without mentioning the fate of Wall Street investment bank Lehman Brothers LEH.N nor the widely reported deal for Bank of America (BAC.N) to buy Merrill Lynch MER.N, Paulson said the actions were critical to "facilitating liquid, smooth-functioning markets and addressing potential concerns in the credit markets."

"I particularly appreciate the efforts of market participants who came together this weekend and initiated a set of steps to facilitate orderliness and stability in our financial markets as we work through this extraordinary environment," Paulson said in a statement.

Paulson refused to commit public funds to a rescue of Lehman during a tense set of meetings with bankers and Fed officials in New York to try to find a solution for the firm's financial problems.

The Fed agreed to broaden the type of collateral that financial institutions can use to obtain direct loans from the Fed, and it increased the amount of Treasury securities it auctions on a regular basis to foster liquid markets.

A private sector consortium of banks and investment banks agreed to create a $70 billion (38.6 billion pound) collateralized borrowing facility.

Paulson said the weekend's discussions made clear that market participants and regulators across the globe recognize the need to support market stability as they address challenges.

"I am committed to working with regulators and policy makers -- including Congress - to take necessary and appropriate steps to maintain the stability and orderliness of our financial markets. And I will engage with regulators and policymakers around the world to that end."

(Reporting by David Lawder)