NEW YORK (Reuters) - A key overnight borrowing cost for U.S. banks fell for the first time in over two weeks after the Federal Reserve cut an interest rate on a test program aimed to reach its rate target when it decides to tighten monetary policy, Fed data released on Tuesday showed.

The effective or average interest rate on federal funds - the cost for banks to borrow excess reserves from each other - was 0.11 percent, up from 0.12 percent on Friday.

This was the first decline in the Fed funds rate since Nov. 28, a day after U.S. Thanksgiving holiday, which the Fed funds rate fell to 0.08 percent.

On Dec. 1, it rose to 0.13 percent, which was highest level since April 2013.

On Monday, the U.S. central bank lowered the interest rate it pays Wall Street dealers, money market mutual funds and mortgage finance agencies to borrow its Treasuries holdings.

It set the interest rate on reverse repurchase agreements at 0.05 percent on Monday, down from 0.10 percent on Friday.

These reverse repos are designed to drain cash from the banking system in a bid to keep the fed funds rate at the level which the central bank targets.

The Fed adopted a fed funds target of 0.00-0.25 percent in Dec. 2008 at the height of the global credit crisis.