(Corrects identity of portfolio manager quoted in paragraphs 6 and 7)
* Fed to buy $40 billion in MBS per month
* New purchase program is open-ended, tied to jobs
* Fed expects near-zero rates until at least mid-2015
By Pedro da Costa and Alister Bull
WASHINGTON, Sept 13 (Reuters) - The Federal Reserve launched another aggressive stimulus program on Thursday, saying it will buy $40 billion of mortgage-related debt per month until the outlook for jobs improves substantially as long as inflation remains contained.
In a significant shift in the direction of U.S. monetary policy, the Fed's policymaking committee tied its unconventional bond buying directly to economic conditions, a move that is likely to be controversial among central bank critics.
"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said in a statement.
In an additional step that reflects just how concerned Fed officials have become about the health of the economy, policymakers said they would not likely raise rates from current rock-bottom lows until at least mid-2015. Previously, it had set such guidance at late 2014.
U.S. stocks added to gains on the Fed's move, the dollar fell broadly and gold hit a six-month high. However, bond prices dropped, pushing yields higher as investors were seemingly underwhelmed by the pace of purchases. Oil prices also slipped.
"They are definitely stepping up," William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts, said of the central bank's decision.
"The problem is there is a decay in monetary policy. We are already at extreme levels, so basically if I make the new mortgage rates 20 basis points cheaper you don't get the bang for the buck," he added.
The decision comes in the face of widespread questions about the likely effectiveness of a further foray into unorthodox monetary policy, including from Republican presidential nominee Mitt Romney.
The Fed said fresh MBS purchases, which it will start on Friday, would come on top of its so-called Operation Twist program, in which it is selling short-term bonds to buy longer-term Treasury debt.
"These actions, which together will increase the committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and to help make broader financial conditions more accommodative," it said.
The latest purchases build on the $2.3 trillion in U.S. government and housing-related debt the Fed has already bought.
By buying mortgage-linked debt, the Fed hopes to press mortgage costs lower and force investors into other assets, lowering their yields as well. Those lower borrowing costs should spur greater lending activity and foster faster economic growth, officials believe.
U.S. economic growth cooled in the second quarter, coming in at a tepid 1.7 percent annual rate, and forecasters do not believe it is doing much better now.
The economy created just 96,000 jobs last month, less than needed to keep up with population growth. While the unemployment rate edged down to 8.1 percent it was only because so many Americans gave up on the search for work.
At 2 p.m. (1800 GMT), the Fed will provide fresh forecasts that could show softer projections for economic growth and higher unemployment, which would help provide a rationale for its decision.
Fed Chairman Ben Bernanke will discuss the decision during a news conference at 2:15 p.m. (1815 GMT). (Editing by Andrea Ricci and Tim Ahmann)