The U.S. Federal Reserve on Friday authorized a new mechanism that it said can eventually be used to withdraw excess cash from the banking system.

* Key 7-day put clause helps funds maintain liquidity * Master contract means Fed can begin testing reverse RPs

U.S. stocks extended declines on Friday as shares of Goldman Sachs slid on reports of a federal probe into the Wall Street powerhouse and after first-quarter gross domestic product came in weaker than expected.

The Federal Reserve has adopted a plan allowing banks to set up the equivalent of certificates of deposit at the central bank. The move would help the Fed mop up money pumped out during the financial crisis and prevent inflation from taking off later.

A report released Friday showing that gross domestic product grew by 3.2% in the first quarter of 2010 is evidence that the U.S. economy is on the right track, President Barack Obama said.

Government spending in the preliminary first estimate shaved 0.4% off of GDP growth. However, that drag may be offset by improvement elsewhere.

The mood of U.S. consumers brightened slightly in late April, but remained quite sour compared with normal times, according to the Reuters/University of Michigan consumer sentiment index.

According to the Commerce Department s first estimate on the nation s gross domestic product, the economy grew at a 3.2% annual pace during the first quarter, compared to a 3.4% forecast.

Month-end considerations and the unwinding of some of the anxiety related to Greece appears to be overwhelming the GDP data in terms of market impact.

President Obama has appointed three new doves to the Federal Reserve Board, thereby taking command of the nation s central bank.