MONEY MARKETS-US short-term rates dip in year-end trade

* Zero rate at cash management bills auction

* T-bill rates lower

* 3-month dollar Libor rock steady again

By Burton Frierson

NEW YORK, Dec 30 (Reuters) - U.S. short-term interest rate markets succumbed to a mild bout of year-end cash hoarding on Wednesday, making a free $5 billion loan to the government for the next month instead of risking it on more volatile assets.

The government's auction of 36-day cash management bills resulted in an interest rate of zero, with investors bidding aggressively for a safe place to put their cash over the turn of the calendar.

In any other circumstances this would indicate a high level of fear in financial markets. But analysts said it was just due to the end-of-year effect, when few if any investors make large allocations of cash.

"No real significance," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC, based in San Francisco. "It's a very small amount for 36 days over the turn. I think it's just year-end demand."

Rates on three- and six-month T-bills fell, as they did on one-year bills <0#USBMK=>. Similarly, prices on interest rate futures were higher <0#FF:>.

Usually this would indicate declining bets on future interest rate hikes from the Federal Reserve, though it was difficult to see any reflection of monetary policy views, given that what little data there was, came out strong.

Business activity in the U.S. Midwest expanded far more than expected in December, hitting an almost four-year high as employment posted the biggest monthly gain since September 2008, an industry association reported on Wednesday. For details see [ID:nN30215445]

The gain in employment, which has been a top worry as the economy struggles to claw back from the worst recession in decades, was seen as strong evidence the recovery is gaining traction.

Also reflecting the holiday torpor, the three-month London Interbank Offered Rate (Libor), closely watched as an indicator of the ease of interbank credit, was fixed unchanged at 0.25063 percent USD3MFSR, where it has been for the past week.

(Reporting by Burton Frierson; Editing by Dan Grebler)