Heightened worries about the banking sector's exposure to some debt-laden firms in Dubai have done little to unsettle the interbank money markets, a decline in benchmark lending rates showed on Wednesday. US stocks saw few gains, in part due to concerns over the credit ratings of Greece and Spain. In the eurozone, financial stocks remained under pressure, led by Greek banking shares, on persistent fears over Greece's fiscal health.
Ample central bank liquidity kept interbank rates pinned down and a key indicator of money market stress showed no signs of increased pressure. The three-month dollar London interbank offered rate was fixed at 0.25519 percent, down a touch from Tuesday's fixing, while the spread over the three-month overnight index swap rate - a gauge of market stress - was little changed near 10 basis points.
The equivalent Libor rates for euros and sterling were also slightly lower compared with Tuesday. One-month borrowing rates for US banks eased on Wednesday to 0.2272 percent from 0.2289 percent in the previous session, according to ICAP's New York Funding Rate. The current level is not far off the record low of 0.2262 percent from November 19.
A Reuters survey on Wednesday showed doubts over the strength of the US economic recovery and tame inflation pressures meant the Federal Reserve would hold interest rates near zero until late next year. Those doubts kept short-term lending rates near historic lows, with the US Treasury on Wednesday selling $15 billion of 19-day cash management bills at a high rate of 0.08 percent.
The sale follows the Treasury auction of $29 billion of four-week bills on Tuesday at a high rate of zero percent, so that investors effectively gave the US government a free one-month loan. Money markets in the eurozone will get another injection of one-year funds from the European Central Bank next week, in what is likely to be the bank's last such offering.
Since the last one-year tender in September, banks have rolled off 106 billion euros of liquidity from various tenders, Morgan Stanley research analyst Elaine Lin said in a report. This week, about 21 billion euros of three- and six-month funds matured and only 4.6 billion euros were rolled over.