By Michael S. Derby

(Reuters) -The Federal Reserve on Wednesday said it is ending the drawdown of its $6.6 trillion balance sheet amid evidence money market liquidity conditions have begun tightening and bank reserve levels dropping.

Instead of allowing up to $5 billion in Treasury securities to mature each month and not be replaced, the Fed said that beginning December 1 it would now seek to hold steady its stock of government bonds by rolling over maturing Treasuries.

The Fed also said it was maintaining its current plan to allow up to $35 billion in mortgage-backed securities to expire each month – a target it has never achieved in more than three years of reductions – but beginning December 1 will reinvest all proceeds from maturing MBS into Treasury bills.

At its Federal Open Mark

See Full Page