MONEY MARKETS-HIBOR down on intervention, NZ IRS curve steeper

* Dollar funding costs remain below 1 percent

* HIBOR at its lowest since mid-January 2005

* JIBOR eases further as rupiah rallies

By Umesh Desai

HONG KONG, May 11 (Reuters) - Dollar funding costs declined on Monday after the absence of nasty surprises in the U.S. government's bank stress test results last week eased credit strains and encouraged banks to lend.

In Hong Kong, interbank rates fell to their lowest in more than four years after monetary authorities intervened to rein in the territory's currency to keep it within the trading band.

And in New Zealand the interbank swap rates dipped for the near-term maturities with rates ring at the longer end of the curve, steepening the curve.

Signs of risk appetite improving and evidence of financial stability helped the cost of borrowing dollars in Asia to remain below one percent, sustaining last week's fall.

"Asset markets are telling us quite clearly that the central bank and government efforts have been rewarded," said Sean Keane of Triple T Consulting in a client note.

"However temporary these efforts may prove to be there is little doubt that the markets have been hauled back from the edge of the abyss, and the regulatory pilots have regained some control of their aircraft."

In Asia, three-month dollar funding rates in Singapore SIUSDD=ABSG fell to 0.92357 percent, down from Friday's 0.95333 percent, tracking the three-month dollar London interbank offered rate (Libor) USD3MFSR=, which was fixed at a record low of 0.93750 percent.

Risk premiums Asian markets have been sinking as the credit markets catch up with the spectacular rally in equities that has stoked the MSCI's index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS up 52 percent since the post-financial crisis low struck in early March.

That improved sentiment has benefited high yielding markets like Indonesia where the rupiah IDR= is at a six month high and the stock market index .JKSE is at its highest since September 2008.

The Jakarta Interbank Offered Rate (JIBOR) was quoted lower as the rush for higher yielding assets helped boost domestic liquidity with some of the easing also reflected in the curve steepness moderating.

"Liquidity tightness has somewhat eased domestically. Players have been shorting USD-IDR of late and also rate cuts have somewhat push the local commercial banks to ease lending rates," said Enrico currency strategist with OCBC Bank, Singapore.

The three-month JIBOR JIBOR= was quoted as low as 8.75 percent and it is now trading at a a spread of about 115 basis points. That gap was as high as 265 bps last week.

In New Zealand, interest rate swaps dipped one to two basis points along the curve, reversing some of Friday's rise as investors speculated upbeat jobs data had raised the prospect of more rapid tightening once the current easing period is over.

The two-year swaps NZDSM3NB2Y= were at 3.52 percent and five-year swaps NZDSM3NB5Y= at 4.84 percent.

Analysts say the 2-year/10-year swap curve NZDIRS will continue to hover near its steepest level.

"We know the short end of the curve will be anchored at lower levels," said Philip Borkin, analyst with ANZ-National Bank.

"The fact that the deposit rates in NZ are being forced up and the cost of borrowing playing catch up, we expect the curve to remain steep if not steeper in the next couple of months."

Borkin said the curve to flatten if the central bank indicated it would stop cutting interest rates.

The Hong Kong Monetary Authority confirmed on Saturday it intervened twice in the money market during New York trading hours on Friday, injecting a total HK$4.263 billion ($550 million) as the Hong Kong dollar continued to hit the top of its trading band.

That sent interbank rates lower with the three-month Hong Kong Interbank Offered Rate (HIBOR) fixed at 0.67643 percent, the lowest since mid-January 2005 and down from Friday's 0.69321 percent. (Editing by Jan Dahinten)