MONEY MARKETS-Dollar borrowing rates at lifetime lows

* Benchmark dollar borrowing costs mark new low

* Calm run-up to end of H1 seen

* BoJ holds rates, RBA sees no need to cut for now

* U.S. Treasury yields fall as stocks slide (Updates comment, changes byline, dateline previous LONDON)

By Ellen Freilich

NEW YORK, June 16 (Reuters) - The rates banks charge one another for loans fell on Tuesday, with the three-month rate marking a record low as credit conditions improved on cautious optimism the worst of the global financial crisis may be over.

Traders cited indications funding needs at the end of the first half of the year would be filled in an orderly manner.

At mid-June, Libor/OIS spreads, or the three-month premiums paid over anticipated central bank rates, remained near their recent lows after gradually tightening throughout this year.

Before quarter-end and the key IMM derivatives settlement date later this week "the relatively mild re-widening of spreads in recent weeks may be seen as an encouraging sign that the liquidity squeeze is over and that the substantial central bank actions to shore up the very short end have been a success," said Nomura rate strategist Sean Maloney.

The lower rates on interbank loans generally signal that despite expected future write-downs, banks see less counter-party risk and are willing to lend to each other at much lower rates than at the time of the mid-September collapse of Lehman Brothers, the height of the financial crisis.

"Confidence is the key thing the Treasury's stress tests produced," BNP Paribas managing director of economic research Brian Fabbri told the Reuters Investment Summit in New York.

"As long as the yield curve remains steep, banks will be profitable," he added.

The three-month dollar London interbank offered rate (Libor) was fixed at 0.61313 percent -- a new low and down from 0.61438 percent on Monday USD3MFSR=. The three-month Libor/OIS spread was steady at 41 basis points.

Equivalent euro rates EUR3MFSR= fixed half a basis point lower at 1.24750 percent and the three-month spread was steady at 50 basis points. For full details of Tuesday's fixings see [ID:nLG461926]

The rates are indicative levels of what price banks believe they can secure funds at. Traded deposit rates for three-month dollars USD3MD= and sterling GBP3MD= have however shown signs of turning higher in recent weeks, in line with upward moves in other rates markets.

Interest rate futures have fallen <0#FF:><0#FSS:><0#FEI>, giving higher implied yields, while government bond yields and swap rates have risen since mid-May as markets take the view that central banks will not ease policy further and the next move will be to higher rates, though not any time soon.

Fabbri, however, said deflation in 2010 will require the Federal Reserve to expand its balance sheet further to try to "fight deflation with inflation."

In a sign that the situation is still far from normal, the European Central Bank warned on Monday that euro zone banks will probably need to write down another $283 billion on bad loans and securities over the next 18 months.

The sum, reported in the bank's semi-annual Financial Stability Report, comes on top of an estimated $366 billion in writedowns by euro zone banks since the start of the financial crisis in mid-2007 [ID:nLF804645].

"(The report) certainly poses a tough challenge to those who would believe that financial stability has made a firm and sustained comeback," Societe Generale strategists said in a note.

The ECB allotted 309.6 billion euros in its latest seven-day financing operation, against a benchmark requirement of 293.5 billion euros and a maturing amount of 302 billion euros.

Analysts believe banks are saving their collateral for the ECB's first one-year unlimited tender of funds later this month.

Meanwhile, the amount commercial banks deposited overnight at the ECB inched down toward recent 8-1/2 month lows.

Elsewhere, Australian interest rate swaps slipped on Tuesday as the central bank's minutes hinted it was ready to ease monetary policy again if needed, while a Bank of Japan policy review suggested it was in no hurry to end extraordinary policy measures.

The Bank of Japan kept interest rates on hold at 0.1 percent at the end of a two-day policy review on Tuesday and held off on any new initiatives, as widely expected.

It did not indicate whether it was ready to end policies such as buying corporate bonds and commercial paper to aid corporate financing. (Additional reporting by Umesh Desail and Kirsten Donovan; Editing by Kenneth Barry)