MONEY MARKETS-U.S. short-term rates steady at low levels

* U.S. rates steady at low levels

* Portugal cuts T-bills placement as yields spike

* Euro Libor at new low ahead of policy decision

* ECB seen on hold, liquidity clues sought
(Updates with short-term U.S. rates, changes byline, dateline;
previous LONDON)

By Ellen Freilich

NEW YORK, Feb 3 (Reuters) - Short-term U.S. rates remained
at low levels on Wednesday, fastened by the Federal Reserve's
resolve to keep short-term rates low for an extended period,
while euro interbank lending rates hit new lows as the market
awaited the European Central Bank's latest policy decision.

Meanwhile, Portugal's debt agency IGCP cut its planned
T-bill placement to 300 million euros from 500 million on
Wednesday as yields spiked 49 percent versus January's
placement, causing a blowout in bond spreads, traders said.

"The volatility is very high due to Greece, the bid-offer
gap was 20-25 points. The IGCP normally allocates what it
plans, or more, but this time it was getting too expensive, so
they placed less," said Rui Pereira, a BES trader in Lisbon.

IGCP officials were not immediately available for comment.

Most peripheral euro zone 10-year government bond yield
spreads reversed an earlier tightening trend and widened, led
by the Portuguese/German spread after the T-bill auction.

"The market's perception is that Portugal is the second
country with fiscal problems after Greece, although it's a
completely different story, especially in terms of
credibility," said Wilson Chin, a bond analyst with ING in
Amsterdam.

The premium investors demand to hold 10-year Portuguese
bonds rather than benchmark German bunds widened around 26
points on the day to 155 basis points -- the widest since April
-- even as the EU endorsed Greece's deficit cutting plan.

The ECB is expected to keep interest rates on hold at a
record low 1.0 percent on Thursday as the banking system
remains awash with around 725 billion euros of liquidity.

The huge amount of funds has pushed the Eonia EONIA=
overnight rate to around 0.3 percent, well below the
refinancing rate of 1 percent, and sent overnight deposits at
the central bank soaring [ID:nECB001232].

The ECB has promised to continue providing banks with
unlimited funds until at least the end of the first quarter.

Three-month euro Libor rates EUR3MFSR= inched to a new
low of 0.60625 percent.

Three-month sterling Libor rates GBP3MFSR= were unchanged
at 0.61563 percent, with the Bank of England also set to
announce its latest policy decision on Thursday.

The bank looks set to halt its massive government bond
buying programme, taking the first step towards normalising
monetary policy.

All but two of 62 economists polled by Reuters reckon the
BoE will call time on quantitative easing after buying almost
200 billion pounds of gilts and a smattering of other assets
since March. [ID:nLAG006067]

Recent activity indicators have pointed to a strengthening
in demand and inflation has risen above the central bank's two
percent target.

Three-month dollar Libor rates USD3MFSR= edged back below
0.25 percent to 0.24906 percent.