MONEY MARKETS-Dollar, sterling Libor rates at record low

* Dollar, sterling Libors set record lows

* 3-mo dollar Libor below 0.4 percent for the first time

* Jackson Hole meeting should reinforce low rate view

By George Matlock

LONDON, Aug 21 (Reuters) - The interbank cost of borrowing
dollar and sterling funds for three-months marked record lows on
Friday as a meeting of monetary policymakers this weekend loomed
and was seen reinforcing prospects for low interest rates.

Ahead of Friday's and Saturday's meeting of central bankers
from around the world at Jackson Hole in the United States, the
market sentiment is for benign rates to come. [ID:nN19476446]

The three-month dollar Libor rate fell below 0.4 percent for
the first time ever, according to the daily fixing from the
British Bankers' Association on Friday, and was seen as having a
psychological significance. [ID:nLL410518]

Meanwhile, the spreads of three-month London interbank
offered rates over OIS rates for dollar, euro and sterling were
little changed.

The spread expresses the three-month premium paid over
anticipated central bank rates, or Overnight Index Swap rates,
and is seen as a gauge of banks' willingness to lend to each
other -- a wider spread is seen as an indication of decreased
inclination to lend.

"The (dollar and sterling) OIS-Libor spreads reach new lows
and the rates are dropping. That's no real story. But I think
Jackson Hole will remind us that central banks are not rushing
to exit from easy monetary policy. Thus, I think that we are for
lower fixings next week too," said David Keeble, head of fixed
income strategy at Calyon in London.

He said as rates in three-month money were low, the 12 month
Libor rates were starting to ease too, as people moved up the
curve.

"Gradually, people are becoming more comfortable about
central banks keeping rates low for many months and look at the
low yields on three months. Three-month dollar has a spread of
just 22 basis points to OIS," Keeble said.
But the move lower by U.S. Libor rates was not smooth this
week, said Laurence Mutkin, analyst at Morgan Stanley in London.

"Libor fixings continue to set lower, although there was a
pause in dollar Libor early this week, (but) the trend was
reversed immediately after. This supports spot Libor-OIS spreads
to edge down 2-3 basis points across all three currencies versus
last Friday. In particular dollar spread tightened to 22 basis
points, a level that was last seen in August 2007," he said in a
research note.

The global credit crisis began in August 2007.

Three-month euro Libor rates moved gently off record lows
marked on Thursday EUR3MFSR=, while the Frankfurt-based
three-month Euribor bank-to-bank lending rate set a fresh record
low. [ID:nFAE005254]

Contributing to the greater resistance of three-month euro
Libor rates to fall, the total liquidity provision from the
European Central Bank was almost flat this week at 729 billion
euros.

"The use of the deposit facility has gradually built up
since the beginning of the maintenance period, from 49 billion
euros to 145 billion euros. We will expect this trend to
continue which maintains a low EONIA fixing in the near-term,"
said Morgan Stanley's Mutkin.