MONEY MARKETS-Benchmark Libor rates steady, cenbanks cautious

By Ian Chua LONDON, Nov 11 (Reuters) - Bank-to-bank borrowing costs held largely steady on Wednesday with little prospect of big moves as central banks continued to assure markets they're not ready to withdraw extraordinary stimulus measures any time soon. In fact, the Bank of England hinted it may add more stimulus after Governor Mervyn King said the central bank was open-minded about pumping new money into the economy. "It's pretty dovish, there's no signal they're going to raise interest rates any time soon," said Nick Stamenkovic, strategist at RIA in Edinburgh. King's comments came a day after top Federal Reserve officials said the incipient U.S. economic recovery was likely to be weak, meaning that interest rates, currently close to zero, should remain near that floor for the foreseeable future. Record low official interest rates, an abundance of central bank liquidity as well as a mending financial sector have helped the interbank funding market recover, driving down lending rates. The three-month dollar London interbank offered rate was fixed at a record low 27.25 basis points for a third straight day on Wednesday. The equivalent euro and sterling rates were unchanged from Tuesday's levels at 67.25 bps and 61.125 bps , although both the euro and sterling rates have drifted off their lowest levels. See. In the euro zone, the overnight Eonia rate is likely to fall from 69 bps set on Tuesday, the highest since late June, as the European Central Bank will return the overnight cash it drained from the money market at the end of the maintenance period. But analysts warned there's likely to be more volatility in the overnight rate until the next ECB's offering of one-year funds at mid-December as banks continued to roll over less funds at shorter-dated tenders, resulting in lower liquidity. "The period starting today and going to December 16 is likely to be more volatile ... we may see higher Eonia fixings," said Guillaume Baron, strategist at Societe Generale in Paris. Baron said after the December one-year tender, there will again be massive liquidity, which should drive down Eonia fixings and keep the overnight rate pinned down until the end of the first half of 2010, when the first batch of one-year funds expire. This week, the ECB allotted just 2.236 billion euros of one-month funds, 782 million euros of 182-day funds and 10.794 billion euros of 91-day funds to banks versus roughly 40 billion euros of maturing funds. Since the ECB started offering 1-year funds at one percent, demand for shorter-maturity funds has fallen. Banks are now gearing for the next 12-month offering in mid-December, the third and possibly the last of such tenders.

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