MONEY MARKETS-US seasonally adjusted CP market shrinks for 5th week

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* Seasonally adjusted U.S. CP market falls $15 bln on the week

* U.S. repo rates hold near recent highs

* ECB rates on hold, no discussion of easing

(Adds U.S. commercial paper and repo rates, changes dateline, previous LONDON)

By Chris Reese and Kirsten Donovan

NEW YORK/LONDON, Oct 4 (Reuters) - The amount of seasonally adjusted U.S. commercial paper contracted for a fifth consecutive week in the week ended Oct. 3, Federal Reserve data showed on Thursday.

U.S. seasonally adjusted commercial paper outstanding fell $15 billion to $975.1 billion in the latest week.

Non-seasonally adjusted commercial paper outstanding - which some analysts consider is a more reliable reading than the seasonally adjusted one since it has been distorted by the financial crisis - rose $1.9 billion to $972.1 billion.

U.S. non-seasonally adjusted foreign bank commercial paper outstanding fell $200 million to $192.2 billion.

Separately, the key interest rate investors charge Wall Street for overnight cash was holding near recent highs on Thursday as bond dealers' demand to fund their trades and bond holdings outweighed investors' willingness to lend.

Analysts attribute the comparatively high rates to dealers' bloated cache of short-term Treasuries as a result of the Fed's "Operation Twist" stimulus program.

Compounding dealers' cash needs has been the effect of the Fed's latest round of purchases of mortgage-backed securities, known as QE3, as the U.S. central bank has not settled purchases with dealers. Analysts estimate dealers should collect anywhere between $30 billion to $40 billion from the Fed on its MBS purchases on Oct. 11.

Until then, the overnight rate on repurchase agreements in which dealers use Treasuries as collateral in exchange for cash will likely stay above the yield on two-year Treasury notes

. The overnight repo rate

is bid 32 basis points on Thursday, flat from late Wednesday, according to brokers.

Meanwhile, euro zone money markets were stable on Thursday after the European Central Bank kept interest rates on hold, giving no clue when, or if, it may ease them further, although many analysts still expect such a move.

The ECB held its main refinancing rate at 0.75 percent and left the rate it pays banks to deposit cash overnight - a key factor in calculating the rates at which cash is lent to the wider economy - at zero as expected.

However, President Mario Draghi said rate cuts had not been discussed at all this month.

"It's looking less likely we'll get a cut next month," said Credit Agricole's global head of interest rate strategy David Keeble in London.

"We're not ruling out a cut, we expect it to come at some point, but they're dragging their feet," he said.

The ECB can cut either the deposit rate or the refinancing rate or both. It has typically maintained a fixed corridor between the two rates but in order to continue this, any further refi rate cut would have to be accompanied by an unprecedented fall in the deposit rate to negative territory.

Market pricing based on forward overnight swap rates

and presuming a constant relationship between these and the deposit rate shows that the expectation of a cut in the deposit rate this year remains minimal.

"The deposit rate remains the underlying driver for short-term interest rates and the macroeconomic impact of changing the refi rate alone is not obvious," said London-based RBS rate strategist Simon Peck.

However, economists polled by Reuters last week expect the ECB to cut the refinancing rate to 0.5 percent in the fourth quarter of the year then remain on hold through 2013


"Looking at the global backdrop there still remains the justification at some point on the horizon for a rate cut," RBS' Peck said. "With the focus currently on the OMT program this may turn into a story for early 2013," he added, referring to the ECB's Outright Monetary Transaction bond-buying program.

The Eonia overnight rate is currently at 8.5 basis points

. It is seen at 7 basis points in December and only marginally lower through the first half of next year. If a deposit rate cut to minus 25 basis points were being priced in, forward Eonia would likely fall further.

And without further changes to the ECB's remuneration system, having a negative deposit rate may not encourage banks to lend more: banks could continue to leave excess cash in their current accounts at the central bank - which pays no interest - rather than lend it to each other or the wider economy.

(Additional reporting by Richard Leong in New York; Editing by James Dalgleish)

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