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NEW YORK, Oct 21 (Reuters) - There were signs this week of more lending in U.S. money markets after new industry regulations on money market funds went into effect a week ago.

The outstanding supply of commercial paper (CP) rebounded from its lowest level in at least 16 years, while their interest rates have retreated from recent peaks, according to Federal Reserve data.

Demand for this type of corporate debt shrank as some fund companies converted their prime funds which had been major buyers of them into ones that own only government securities. This was a bid to be exempt from the final phase of money fund reform from the Securities and Exchange Commission.

These SEC rules required prime funds for institutional investors as well as tax-exempt funds to float their share price and/or to impose redemption fees and limits during periods of market turbulence such as the global credit crisis.

Prime fund assets have fallen more than $1 trillion from a year ago with much of them switched into government-only funds, iMoneynet data showed.

While the drop in corporate debt demand from money funds has raised some short-term corporate borrowing costs, it was not disruptive for money markets, analysts said.

"The transition process has proved to be generally orderly throughout the year," J.P. Morgan analysts wrote in a research note on Friday.

The commercial paper sector has been one most affected by the fund conversion.

The amount of CP outstanding on a seasonally adjusted basis edged up $2.4 billion from the lowest levels in at least 16 years to $905 billion in the week ended Wednesday, Fed data showed.

Interest rates on longer-dated CP remained elevated but some have declined from earlier this week.

For example, the average interest rate on 90-day CPs issued by AA-rated financial companies was 0.72 percent on Thursday, compared with 0.78 percent on Monday, according to the Fed.

Meanwhile, other closely watched interest rates in U.S. funding markets have eased from their recent peaks.

The overnight interest rate on repurchase agreements, in which banks and bond dealers use U.S. Treasuries and other securities as collateral to raise cash from investors, held steady at a three-month low at 0.25-0.30 percent, according to ICAP data.

Friday's repo rate was below 0.42 percent a week earlier and lower than 1.75 percent reached on Sept. 30 which was last seen during the height of the financial crisis eight years ago.

(Reporting by Richard Leong; Editing by Chizu Nomiyama) ((richard.leong@thomsonreuters.com; +1 646 223 6313; Reuters Messaging: richard.leong.thomsonreuters.com@thomsonreuters.net; Twitter @RichardLeong2))