HONG KONG, Nov 12 (Reuters) - U.S. two-year swap spreads pushed out to their widest levels in four months on Friday, showing rising stress in the financial system as the worries about Ireland's debt problems cast a shadow over markets. * Two-year spreads edged out about a basis point to 26 basis points, taking their widening to 11 basis points this week as the mounting worries that Ireland may need help from the euro zone has spilled into money markets. * A sharp slide in Asian stocks, driving by the biggest selloff in Shanghai shares in 14 months, added to the caution among investors and banks who are starting to prepare for year-end book closing. * This week's jump in the dollar and slide in risky assets has rattled some investors looking to close positions and book gains on winning trades before the end of the year. * Three-month dollar funding costs in Singapore edged up slightly to 0.2915 percent, suggesting that three-month LIBOR could rise at the fixing later in the day. * Before this week U.S. swap spreads and three-month LIBOR have been steady near their lowest levels since April this year when the fears about Greece defaulting caused money market tensions reminiscent of those seen during the financial crisis. * Worries about China tightening monetary policy further were cited as one factor fueling the selloff of commodities and stocks in Shanghai. * Data this week showing annual inflation in China accelerating to 4.4 percent had stoked expectations for a rate hike this year, driving bond yields sharply higher. * Five-year Chinese bond yields jumped 23 basis points to 3.68 percent and jumped as high as 3.75 percent, a two-year peak and up about 30 basis points this week. * But benchmark Chinese money market rates dipped slightly, with the seven-day bond repo rates falling 3 basis points to 1.700 percent. * The repo rate hit a six-month low near 1.60 percent touched last week on the ample liquidity in the domestic money market, one of the factors believed to be behind the People's Bank of China move to lift bank reserve requirements this week. * In Hong Kong, local swap rates edged up relative to U.S. swap rates as the Hong Kong dollar dipped along with the broad drop in Asian currencies. The spread between one-year Hong Kong and U.S. swap rates narrowed to -14.6 bps from near -18 bps, what was the most negative spread since July. * Money has headed into Hong Kong on bets that the territory may shift its currency peg corridor to the U.S. dollar, pushing HK swap rates lower and pushing the Hong Kong dollar near the top of its trading band to the greenback. (Reporting by Eric Burroughs; editing by Kazunori Takada) Keywords: MARKETS MONEY (firstname.lastname@example.org; +852 2843 1652; Reuters Messaging: email@example.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.
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