NEW YORK, Dec 31 - The U.S. commercial paper market expanded for the second week in a row in the latest week, Federal Reserve data showed on Thursday.

For the week ended Dec. 30, the size of the U.S. commercial paper market, a vital source of short-term funding for companies' daily operations, rose by $10.8 billion to $1.170 trillion outstanding from $1.159 trillion the previous week.

Asset-backed commercial paper outstanding fell by $500 million after a $2.6 billion rise the previous week, taking the asset-backed commercial paper total to $485.8 billion in the week ended Dec. 30 from $486.3 billion the previous week.

Unsecured financial issuance rose by $9.2 billion in the week compared with $14.2 billion rise the previous week.

The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis began. (Reporting by Chris Reese; Editing by Leslie Adler)