The Fed said it took the action "in light of continued fragile circumstances in financial markets" along with other steps to ease a global credit squeeze, in coordination with the European Central Bank and the Swiss National Bank.
The move by the central bank will continue past the original September expiration date to January 30 under a program aimed at helping get liquidity to so-called primary dealers, big investments firms which have a relationship with the Fed.
The program was implemented after the collapse of Wall Street giant Bear Stearns, which faced a cash squeeze after being unable to borrow in private markets to fund operations.
It was the first time since the 1930s that the Fed had offered credit to non banks.
In a further step to help stressed investment firms, the central bank said the New York Fed would auction options for these firm to borrow Treasury securities to meet short-term cash needs.
The Fed is adding 50 billion dollars to the program in addition to the