Forex

WASHINGTON (AP) - Federal regulators will allow state agencies and municipalities to buy back their own debt as a way to ease credit-market distress that has made borrowing more expensive, an official at the Securities and Exchange Commission said Wednesday.

Key lawmakers of both parties and Wall Street investors have pressed the agency recently to allow the buybacks. The cost of borrowing has gone up for many public entities as a result of failed auctions in a $330 billion market where investors buy and sell securities backed by municipal bonds, student loans and other debt. SEC staff plans to issue guidelines by which public entities may buy back their debt that underlies so-called auction-rate securities, without it being deemed as market manipulation, Erik Sirri, director of the SEC's trading and markets division, told the House Financial Services Committee on Wednesday.

'Due to the severity and immediacy of the auction-rate market decline and implications for investors, (SEC) staff is developing appropriate guidance to facilitate orderly markets and continue to protect investors,' Sirri said.

The agency action could come later this week, SEC spokesman John Nester said.

Fearful that funding for projects in their districts will dry up, members of Congress lauded the plan.

The SEC action 'will bring relief to taxpayers, who otherwise would have been on the hook for huge spikes in borrowing costs,' said Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee, who was among the lawmakers petitioning the agency. 'These municipalities did nothing wrong, but their backs are breaking under the high interest rates triggered by this huge market failure,' he said in a statement issued Wednesday.

An example is the Port Authority of New York and New Jersey, which saw its weekly borrowing costs soar to 10 percent, from $83,600 to $389,000, as a result of the market dislocation. Some states have suspended their college loan programs.

Schumer has said that Nassau County on New York's Long Island was considering buying as much as $700 million of its own auction-rate bonds but was facing regulatory hurdles -- risking triggering sanctions by the SEC for market manipulation. Buying back the bonds, he said, could spare county taxpayers an estimated $1.5 million a week in extra financing costs.