FACTBOX: The Fed's evolving liquidity toolkit

CHICAGO (Reuters) - The Federal Reserve on Tuesday said its previously-announced program to buy some $500 billion in mortgage-backed securities would be up and running in early January.

The Fed said it had selected investment managers BlackRock Inc, Goldman Sachs Asset Management, PIMCO and Wellington Management Co to run the program, details of which were first announced on November 25.

The firms will buy MBS from the agencies Fannie Mae, Freddie Mac and Ginnie Mae, as part of the government's effort to break the grip of a deep housing downturn and severe credit crunch.

The following is a look at the Fed's evolving liquidity toolkit:

DISCOUNT WINDOW:

The discount window is the Fed's traditional way of providing liquidity to the depository institutions that it regulates. The Fed's first liquidity salvo was on August 17, 2007, when it unexpectedly lowered the discount rate by a half percentage point, narrowing the spread above the benchmark federal funds rate -- the rate banks charge each other for loans -- to a half percentage point. It narrowed the spread to just a quarter point on March 16 of this year. The Fed accepts a broad range of collateral for loans at the discount window. When the Fed set a fed funds range of zero to 0.25 percent on December 16, it set the discount rate at 0.50 percent.

SHORING UP MONEY MARKET MUTUAL FUNDS:

The Fed on September 19 said it would make discount window loans to financial institutions to allow them to buy asset-backed commercial paper from money market mutual funds. The program is intended to assist money funds that hold such paper in meeting demands for redemptions by investors and to foster liquidity in the asset-backed commercial paper market and money markets. The program was initially set to run through January, but has been extended to April 30, 2009.

MORTGAGE-BACKED SECURITIES PURCHASE PROGRAM: