MONEY MARKETS-U.S. Treasury bill rates dip below zero

* US T-bill rates dip below zero for first time since Dec

* Dollar Libor at new low, other market rates fall

* Abundant liquidity, dovish central bankers support
(Adds trader quote, recasts; changes dateline; previous
London)

By Chris Reese

NEW YORK, Nov 20 (Reuters) - Yields on short-dated Treasury
bills pushed below zero on Friday as investors clamored for
low-risk investments in bets that central banks will hold
interest rates at ultra-low levels for a long time.

Dollar interbank lending rates hit a new low as an
abundance of liquidity and dovish central banker comments also
eroded short-term market rates.

Even as policy makers begin to talk about exit strategies
from extraordinary measures put in place during the depth of
the financial crisis, investors expect policy rates around the
globe will stay low well into next year.

"People are getting out of risk, getting into Treasuries
for the year-end, everybody is parking money," said James
Combias, head of government bond trading at Mizuho Securities
USA in New York, adding that the Federal Reserve is
expected to hold interest rates near zero for the foreseeable
future.

Demand for U.S. Treasury bills maturing in January 2010
pushed their yields below zero for the first time since late
December when the financial crisis worsened in the aftermath of
the Lehman Brothers collapse.

Two-year Treasury note yields US2YT=RR also held close to
the lowest since December, which in turn represented the lowest
levels on record.

"Flow information suggests central banks buying T-bills and
short-term Treasury cash even at very low yield as cash is
abundant," said BNP Paribas rate strategist Alessandro
Tentori.

Calyon rate strategist David Keeble said year-end factors
were also at play as banks tidied up balance sheets to present
the best possible view of their business at the end of the
year.

"It's a little bit of window dressing, to do with needing
liquidity on the balance sheet. You liquidate some securities
and buy something low-risk like Treasuries so you get a bit of
a squeeze," he said.

Three-month dollar Libor rates USD3MFSR= fell to 0.26219
percent [ID:nLK442537].

Eurodollar interest rate futures EDM0EDU0 -- a measure
of interest rate expectations -- have been climbing steadily
since late October, reaching contract highs and implying lower
rates, on the back of dovish central bank comments.

SLOWLY, SLOWLY TO THE EXIT

European Central Bank officials have also stressed that
while they are heading for the exit, the withdrawal of special
measures to provide liquidity to the banking sector and in turn
boost the economy, will be gradual.

But recent comments appear to warn banks against becoming
too reliant on ECB funds.

ECB President Jean-Claude Trichet warned on Friday that
market participants needed to be aware that the size of support
measures was unprecedented and any measures which posed a
threat to stability would be undone "promptly and
unequivocally."

And ahead of the bank's next, and likely final, tender of
one-year funds in December, Executive Board member Lorenzo Bini
Smaghi late on Thursday urged national authorities to address
over-reliance on cheap, unlimited ECB funds by some banks.

The Greek central bank this week did just that, advising
banks to show restraint in borrowing 12-month ECB funds.

Banks currently have 595 billion euros of longer-term ECB
money, over 85 percent of which is in 12-month funds, and there
is around 60 billion euros of excess cash in the system, most
of which is being parked back at the central bank overnight.

Three-month Euribor rates EUR3MFSR= edged down to 0.67313
percent.

(Additional reporting by Kirsten Donovan in London and
Burton Frierson in New York)
(Editing by Theodore d'Afflisio)