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UPDATE 1-U.S. commercial paper at lowest in about 4 years

(Adds details, context, analyst comments, byline)

NEW YORK, April 23 (Reuters) - The U.S. commercial paper market contracted to its smallest in about four years as the global credit crisis and deep recession continued to erode it, analysts said.

For the week to April 22, the size of the U.S. commercial paper market, a key source of short-term funding for routine needs such as payroll at many companies, slipped by $1.7 billion to $1.472 trillion outstanding, from $1.474 trillion the previous week, Federal Reserve data showed on Thursday.

The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007 after which the credit crisis started to erode it.

The overall amount of U.S. commercial paper is still trending down and is at the lowest outstanding in about four years, said Ray Stone, economist with Stone & McCarthy Research Associates in Princeton, New Jersey.

“Is this occurring because issuers can’t issue commercial paper because the market is broken?” asked Stone.

“I think largely it is for other reasons,” he said. Nonfinancial companies often use commercial paper to help replenish inventories, which are still falling in the protracted recession and reducing the need to issue this type of paper, he said.

Huge government programs to funnel cheap cash to banks and companies and a recovery of private investors interest in longer-maturity corporate debt have created alternative channels for companies to borrow, analysts add.

Asset-backed commercial paper outstanding fell by $9.9 billion after contracting by $23.5 billion the previous week.

Asset-backed commercial paper outstanding fell to $671.1 billion in the latest week, the lowest since November 2004 according to Reuters data, from $681.0 billion the prior week.

Short-dated asset-backed paper has been hard hit as mortgage loans sour in the housing market bust and a rising tide of auto and credit card debt turns bad in the grinding economic downturn.

Unsecured financial issuance outstanding rose by $17.8 billion after falling $29.4 billion in the previous week. (Reporting by John Parry; Editing by James Dalgleish)

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