U.S. commercial paper issuance, including the troubled asset-backed sector, rose for the first time in a month in a sign of progress in an otherwise bleak outlook for credit and the economy, new data released on Thursday showed.

A key mechanism for companies' short-term cash needs, total commercial paper outstanding rose $23.6 billion in the week ended Feb. 27, having fallen nearly $40 billion in the preceding three weeks, according to the Federal Reserve.

Asset-backed issuance rose for the first time in five weeks, by $7.6 billion. The sector had lost about a third of its value in a few months because of its association with the tarnished subprime real estate market.

The credit crisis began in housing and then spread to the billions of dollars in bonds and derivative assets backed by mortgages.

This has contributed to a considerable slowing in economic activity that has spurred aggressive interest rate cuts from the Federal Reserve and a stimulus package of more than $150 billion from the federal government.

Analysts said the recovery in commercial paper was too modest to represent a significant improvement in lending conditions. There is some evidence that the Fed's efforts to dump massive liquidity into the financial system has had some positive effects.

But this impact has been dwarfed by the breadth of losses experienced by financial institutions, which so far add up to well over $100 billion and by many estimates could be more than triple that number when all is said and done.

Just when you think it can't get any worse, it does, said Shaun Osborne, senior currency strategist at TD Securities in Toronto. (Reporting by Pedro Nicolaci da Costa; Editing by James Dalgleish)