WRAPUP 1-World central banks extend swap lines

* World central banks extend swap lines until Feb 2010

* Fed: markets will likely be strained for some time

* Fed extends five emergency funding facilities

NEW YORK, June 25 - The Federal Reserve and its counterparts around the world extended a currency market program to spur lending on Thursday as financial market strains are expected to persist despite signs of improvements.

The Federal Reserve also extended until February 2010 four other emergency funding facilities set up as lifelines to credit markets frozen by fear of large losses. The programs were scheduled to expire at the end of October.

"Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and will likely be strained for some time," the Federal Reserve said in a statement.

The announcement comes a day after the Federal Reserve left interest rates unchanged at virtually zero and said it saw signs that the deep U.S. recession was easing.

It also follows on the heels of the European Central Bank pouring 442 billion euros ($613 billion) of one-year funds into money markets on Wednesday in its biggest fund injection ever.

Central banks from Australia, Brazil, Canada, Denmark, Britain, South Korea, Mexico, New Zealand, Norway, Singapore, Sweden and Switzerland, as well as the European Central Bank, are extending their currency swap lines so they had U.S. dollars to lend in their markets. The first swaps were established in December 2007 and over time extended to a wider range of foreign central banks. The central banks extended the program to February 1, 2010.

A senior Federal Reserve official said use of the swap lines with 14 other central banks around the world had peaked last December at around $586 billion and had fallen to under $150 billion currently.

Three central banks -- the European Central Bank, the Swiss National Bank and the Bank of England -- also extended agreements reached in April 2009 to provide foreign currency to U.S. financial institutions if needed. The Bank of Japan will consider extending its reciprocal swap arrangements with the Federal Reserve and announce its decision after its next monetary policy meeting.

Foreign exchange markets showed little reaction to the announcement.

The U.S. central bank also extended four more of its emergency liquidity programs. But it scaled back on others and said that demand had waned even for those programs it had decided to extend.

The Bank of Canada said it was extending its term purchase and resale agreement auctions through at least the end of January 2010.

AN EXIT STRATEGY UNFOLDING?

The U.S. Federal Reserve cut the size of upcoming Term Auction Facility (TAF) auctions, and said that auctions under parts of the Term Securities Lending Facility (TSLF) that are seeing very weak demand will be suspended.

The Fed did not extend the Money Market Investor Funding Facility (MMIFF) beyond October, due to better market conditions and the continued availability of other programs, the Fed said. The MMIFF was put in place to provide liquidity to U.S. money market investors.

Senior Fed officials, on a background call with reporters, avoided answering the question of whether their actions could be characterized as the beginning of an "exit strategy" from the Fed's hefty involvement in supporting financial markets.

Fed representatives said only that the actions reflected the U.S. central bank's expectations of how the economy and financial markets were likely to evolve in coming months.

"The moves aren't an exit strategy so much as an ongoing tweaking of the system," said T.J. Marta, a bond strategist at Marta on the Markets.

Investors and analysts have been questioning how the Fed would reverse course once the economy is back on solid footing. Any exit strategy, however, would require a delicate balance: removing extra liquidity too soon could squash a recovery; moving too slowly could spawn inflation.

(Additional reporting by Glenn Somerville, Pedro da Costa and Reuters bureaus around the world)