NEW YORK (Reuters) - JPMorgan Chase & Co <JPM.N> will stop settling U.S. government securities transactions for most dealers by the end of next year as it streamlines its business, the bank said on Friday.

The change would leave BNY Mellon Corp <BK.N> as the only clearing bank for such transactions between dealers and investors.

In the first six months of 2016, an average of $504 billion of U.S. Treasuries changed hands per day, down slightly from a daily average of $507 billion for the same year-earlier period, according to data from the Securities Industry and Financial Markets Association.

The $1.6 trillion tri-party repo market, involving broker-dealers, investors and clearing banks, is a key source of short-term borrowing for Wall Street firms which pledge U.S. Treasuries and other securities as collateral to fund their trades.

"After a careful review, we have determined that it is a non-core service, particularly as we simplify our business and continue to prioritize strategic growth opportunities," a JPMorgan spokesperson said in an email.

JPMorgan will end its Government Securities Settlement Services by the end of 2017, the spokesperson said.

BNY Mellon currently clears 80 percent to 85 percent of tri-party repos, while JPMorgan clears the rest, according to analysts.

BNY Mellon responded in a statement that it was committed to settlements business.

The change would affect the settlement of so-called general collateral finance repos for 30 dealers and broker-dealers, Bloomberg first reported on Friday, citing Michael Albanese, the Wall Street bank's managing director of investor services.

JPMorgan's decision on its government settlement business came after its customers could no longer conduct repo trades with BNY Mellon clients and vice versa on July 15 to comply with a new rule from the Securities and Exchange Commission.

This has essentially split the tri-party repo market into two.

The SEC rule change, which is part of a broader reform of the tri-party repo market, is aimed at reducing reliance on intraday credit from clearing banks for these loans.

“Treasury has been in regular communication with J.P. Morgan about its plans regarding its Government Securities Settlement services. We are fully confident that Treasury securities will continue to trade and settle in the usual manner," Treasury spokesman Rob Runyan said in a statement.

"We are coordinating with J.P. Morgan and the Federal Reserve to manage a smooth transition that minimizes any potential impact," he added.

(Reporting by Jonathan Spicer and Richard Leong; Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang and James Dalgleish)