TOKYO (Reuters) - The health of the largest U.S. financial firms is on the mend as the fallout from the subprime mortgage crisis begins to moderate, the managing director of a leading international banking lobby said on Thursday.

"The health of the largest 20 to 30 U.S. financial institutions is improving," Charles Dallara of the Institute of International Finance (IIF) said at a news conference in Tokyo.

However turbulence in global credit markets is likely to continue until the U.S. housing market bottoms out, he said.

The IIF is based in the United States and represents more than 380 of the world's biggest financial institutions.

The U.S. government announced on Sunday that it would take control of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), which together back about half of the country's $12 trillion in mortgages.

The move was aimed at ensuring the stability of the financial system and shore up the housing market.

The takeover over of the two institutions will provide a much needed "injection of stability" in the markets, Dallara said.

(Reporting by David Dolan; Editing by Edwina Gibbs)

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