MONEY MARKETS-Conditions continue to improve slowly

(Updates money market prices, adds comment and quotes)

By Jamie McGeever

LONDON Nov 11 (Reuters) - Interbank lending and borrowing rates for dollar, euro and sterling funds inched lower on Tuesday as European central banks again acted to try and maintain the recent improvement in market conditions.

The European Central Bank and Bank of England conducted money market operations to manage euro and sterling liquidity, and market participants said London interbank offered rates (Libor) will likely be fixed lower.

Activity is lighter than even recent scant levels, however, as the U.S. bond market is closed for the Veterans Day holiday.

Traders continue to report hardly any interbank lending for periods beyond a month, in large part due to concerns over the year-end period when financial institutions take a snapshot of their books for reporting purposes and liquidity dries up.

"It looks like the combination of lower rates, more liquidity and government schemes are helping to bring Libor rates down," said Christoph Rieger, rates strategist at Dresdner Kleinwort in Frankfurt.

"But a more profound decline probably won't come before the end of the year."

At 1030 GMT three-month euro interbank deposit rates were indicated at around 4.25 percent, the middle of a 4.07 to 4.42 percent range, compared with 4.1 to 4.45 percent EUR3MD= the previous day.

Three-month sterling deposit rates were also indicated at around 4.25, in a range of 3.6 to 4.4 percent compared with 3.7 to 4.95 percent GBP3MD= early on Monday, Reuters data showed.

Traders said three-month sterling Libor will likely fix around 4.36 percent at the British Bankers' Association's daily fixing between 1100 and 1200 GMT.

Three-month euro Libor has fixed lower for 23 consecutive sessions, and dollar and sterling Libor down for the past 21 sessions, although analysts point out that's partly driven by growing expectations of lower policy rates in the coming months.

Interbank deposit and Libor rates are only indicative prices of where banks are lending to each other, which institutions use as a base to set their own lending rates.

There were no prices indicated for U.S. swap spreads or any other spread product that involved Treasury notes or bills on Tuesday because the U.S. bond market is closed.

Three-month dollar interbank deposit rates eased a bit to 1.12-3 percent from 2-2.95 percent USD3MD=.

NO CURE

The ECB on Tuesday lent commercial banks 334.4134 billion euros ($431.2 billion) at a flat rate of 3.25 percent. The ECB said on its Reuters information page ECB24 that 848 banks bid for funds this week. Last week 756 banks received a fraction under 312 billion euros.

The ECB will also trim excess short-term funds from the system via a liquidity absorbing fine tuning at 1400 GMT. There will be no limit on the amount banks can deposit and a maximum bid rate of 3.75 percent.

Overnight loans attract an interest rate of 4.25 percent and deposits pay 3.25 percent, compared to the ECB's main rate of 3.75 percent. This is the last day of the ECB's reserve maintenance period, and rates will change on Wednesday to reflect last week's 50 basis point rate cut.

The ECB also said on Tuesday overnight deposits at the bank fell to 209.483 billion euros as of Nov. 10 from the 225.501 billion euros reported on Monday, and well down on the record high of 297.424 billion set last week.

The fall should not automatically be read as a sign that credit market tensions are easing. Money markets are effectively 100 billion euros lighter this week after a 120 billion euro ECB loan matured at the end of last week and was replaced with one of 20 billion.

The BoE, meanwhile, invited bids for 20 billion pounds of long-term repos maturing Feb. 26 next year, and set the minimum bid for its three-month repo against routine collateral at 2.44 percent and 2.94 percent against wider collateral.

But the general improvement in money market conditions -- Libor spreads over anticipated central bank rates are coming in too -- doesn't mean broader financial market conditions follow suit lock step.

Global equity markets and emerging market currencies, for example, were back under pressure on Tuesday.

"Lower Libor rates and money market risk spreads, while reducing liquidity tensions, are no cure for asset price deflation," said Lena Komileva, G7 strategist at Tullet Prebon.