MONEY MARKETS-Short-term interbank rates steady to tad up

By Emelia Sithole-Matarise LONDON, Nov 12 (Reuters) - Short-term interbank lending rates were steady to slightly up on Thursday on abundant central bank liquidity but analysts said shorter-dated money market rates might drift up as year-end looms. Money market rates have fallen to record lows this year on rock-bottom official interest rates and vast injections of central bank liquidity with policymakers assuring markets they are not ready yet to withdraw extraordinary stimulus measures. European Central Bank Governing Council Member Michael Bonello told Reuters on Thursday the bank would ensure pulling back its liquidity lifeline did not disrupt markets and that banks had access to enough alternative funding as 12-month loans were phased out. On Wednesday, the Bank of England hinted it might add more stimulus after Governor Mervyn King said the central bank was open-minded about pumping new money into the economy. The three-month dollar London interbank offered rate fixed at a record low 0.2725 percent for the fourth straight session, according to the latest fixings by the British Bankers' Association. Equivalent euro Libor rates were fixed slightly lower at 0.67125 PCT from 0.67250 percent on Wednesday while sterling rates inched up to 0.61250 percent versus 0.61125 percent. See for the latest Libor fixings. Some analysts see some distortion in Libor ahead of year-end when traditionally banks tend to hoard as much short-term liquidity as possible as they square up their books. "We've seen Libor already drift up and spreads widen over base rates for a few weeks now and over the next five to six weeks it's about liquidity as the quarter- and year-end draw close," said Kenneth Broux, market economist at Lloyds TSB. "That's going to be a bigger driver of the front end of the money market curve. People will be looking to come down maturity as much as they are likely to keep it liquid so you'll probably see quite good demand going into December," he said. Meanwhile, the overnight Eonia rate fell to around 34 basis points from 69 bps set on Tuesday, the highest since late June, after the European Central Bank returned cash it drained from the system on Tuesday at the end of reserve maintenance period. But analysts warn 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. "We expect ... a surge in the allotment from September's 72 billion euros," UniCredit analysts said in a note. "Moreover, we think the ECB will drop the one-month and 6-month LTROs at the beginning of next year and will retain full allotment for the weekly main refinancing operations. If we are right, the EONIA should trade around current levels until -- at least -- July 2010," they said. The amount of cash banks deposited overnight at the ECB rose, data showed on Thursday, up at 44.758 billion euros compared with 16.536 billion previously. (Editing by Andy Bruce) Keywords: MARKETS MONEY (Reuters Messaging: [e-mail], Email: [e-mail]; [phone]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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