By Trevor Hunnicutt

NEW YORK (Reuters) - BlackRock Inc <BLK.N> portfolio managers will be allowed to borrow from their peers if they are pressed for money to cash out clients, U.S. Securities and Exchange Commission officials said in a notice on Tuesday.

Mutual funds and money-market funds offered by the world's largest asset manager could borrow up to a third of their assets in total - or up to 10 percent of assets without posting collateral - through BlackRock's "InterFund Program."

BlackRock last year asked the regulatory agency to let the funds borrow cash from one another, for instance to meet a hypothetical spike in requests by clients to redeem shares.

Some other fund companies already can provide similar lending, including Vanguard Group and Fidelity Investments, yet BlackRock's request came as regulators and Wall Street are putting mutual funds' liquidity under a microscope.

Late last year, Third Avenue Management liquidated its near $1 billion Focused Credit Fund <TFCIX.O> as its junk-bond investments sank.

"Interfund loans will not prevent another mess," said Erik Gordon, a professor at the University of Michigan Ross School of Business. "They will make it tougher to sort out the mess."

The SEC last year proposed a requirement that U.S. funds step up planning to ensure liquidity. The rules have not been finalized.

"No question about it: Liquidity risk management is high on the regulators' agenda," said David Tittsworth, a longtime specialist in fund management, now at law firm Ropes & Gray LLP in Washington.

By law mutual funds are expected to honor redemption requests within seven days. While mutual funds are urged by SEC guidance to cap investments in hard-to-sell securities at 15 percent, this is not a legal requirement.

In addition to meeting redemptions, funds could also use the interfund loans to tide themselves over if the piping that supports trade settlement and cash delivery fails, BlackRock has said.

"Interfund lending exemptive relief is commonly granted by the SEC to mutual fund complexes," BlackRock spokeswoman Tara McDonnell said.

Cash for the loans would come from other BlackRock funds, which will likely earn more in interest lending to peers than they would investing in short-term debt like repurchase agreements, BlackRock told regulators.

That rate would also be lower than what banks would charge funds to borrow for the same purpose.

BlackRock, which manages nearly $5 trillion in assets, has already arranged for its funds to be able to tap outside credit lines during times of stress.

(Reporting by Trevor Hunnicutt in New York; Additional reporting by Lisa Lambert in Washington; Editing by Bernard Orr and Leslie Adler)