RPT-UPDATE 1-US commercial paper shrinks to lowest since Feb

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NEW YORK (Reuters) - The U.S. commercial paper market shrank to its lowest level outstanding since February in the latest week as a slipping economy exacerbated the credit market strains buffeting short-term loan markets.

In recent weeks, companies have either lost access to commercial paper funding or reduced its reliance on such funding, as a result of persistent bottlenecks across global money markets.

The overall U.S. commercial paper sector shrank for a second straight week to $1.817 trillion in the week ended April 9, down $10.8 billion from a week earlier, according to Federal Reserve data released on Thursday.

This contraction in commercial paper could be a sign that companies are starting to cut back on capital investment and rein in business plans as the U.S. economic downturn takes hold, analysts said.

"Going forward we would have to look to see, with the economy now in the throes of a recession as most people think, whether the appetite for commercial paper will lessen," said Kenneth Kim, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.

The asset-backed commercial paper segment, which had helped to fuel the U.S. housing boom that has since burst, fell $5.2 billion in the latest week to $780.8 billion. The previous week, asset-backed commercial paper had increased by $8.3 billion.

Unsecured commercial paper issuance from financial firms fell $4.8 billion, shrinking for the second straight week.

(Reporting by John Parry; Editing by Theodore d'Afflisio)