MONEY MARKETS-Central bank move not dispelling fears

* Three-month dollar Libor touches fresh 13-month highs

* Risk premiums rise despite less liquidity fears

* Central bank move not seen solving euro zone debt woes

* Traders await political solution to a political problem (Updates U.S. action; changes dateline, previous LONDON)

By Richard Leong

NEW YORK, Sept 16 (Reuters) - Key lending rates crept up on Friday after a coordinated move among central banks to pump dollars into European banks did little to dispel worries about the euro zone debt crisis.

Investors and traders are holding out hopes for aggressive measures from European policy-makers to come up with a firewall for European banks in case debt-laden Greece defaults.

On Friday, U.S. Treasury Secretary Timothy Geithner told EU finance ministers they should end loose talk about a euro zone break-up and work more closely with the European Central Bank to tackle the debt crisis. For details, see [ID:nL3E7KG0KC]

"There is a high degree of nervousness and a low degree of confidence in European financials," said Stephen Wood, chief market strategist at Russell Investments in New York, which manages $163 billion worldwide.

Persistent jitters over the soundness of French banks due to their exposure to Italy and Greece hammered the shares of BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA). [ID:nL5E7KG2GU]

On Wednesday, Moody's Investors Service downgraded Credit Agricole and Societe Generale (SOGN.PA), citing increased concerns about their funding and liquidity profiles in light of worsening refinancing conditions. It left the ratings of the biggest French bank BNP on review for downgrade.

Anxiety about more bad news from Europe over the weekend spurred safehaven buying of U.S. Treasury bills, pushing their rates below zero on Friday.

While central banks show willingness to help European banks, there have been no signs of progress among euro zone officials to deal with solvency problems threatening the 17-nation block, analysts said.

"You have a political problem with an economic outcome. Ultimately you need a political solution," Wood said.

In the wholesale lending market, the London interbank offered rate for three-month dollars USD3MFSR= touched a fresh 13-month high at 0.35133 percent. It has risen nearly 10 basis points since late July.

Libor is a benchmark for more than $350 trillion worth of financial products worldwide.

Libor for three-month euros EUR3MFSR= climbed to 1.48375 percent, matching its highest level in two weeks. For more on Friday's Libor fixings, see [ID:nEAP000028]

While the benchmark interbank rate continued to climb, the borrowing rate for dollars in the foreign exchange market stabilized. Some dollar-strapped banks have turned to the currency market because money market funds and other traditional investors curtailed lending to them due to their exposure to peripheral European countries.

The cost of raising three-month dollars through the cross currency basis swap market EURCBS3M=ICAP last stood minus 89.5 basis points, flat on the day. It fell sharply on Thursday after the central bank's dollar loan announcement. It touched the most expensive level in a year at minus 125 basis points earlier this week.

HIGH ANXIETY

Major central banks around the world said on Thursday they would cooperate to offer banks access to three-month dollar loans [ID:nL5E7KF3RA] -- removing a key source of money markets stress built over recent weeks.

The move failed to stop the rise in Libor, but kept fears about funding problems among euro zone banks from escalating, analysts said.

Still risk premiums in the dollar loan market generally rose on the day after they fell briefly in earlier trading.

"It just alleviated some of the immediate concerns about dollar funding. I don't know if it's going to have a tremendous long-term effect," said Alex Manzara, vice president at TJM Futures in Chicago.

The spread between three-month dollar Libor and the overnight indexed swap rate on three-month dollars USD3MOIS=RR was 29.6 basis points -- its widest level since late July 2010 -- from 29.4 basis points late Thursday.

Another gauge of investor jitters -- the spread between three-month Libor and three-month Treasury bill rate US3MT=RR -- rose 1 basis point to 35 basis points.

Manzara said another reason for the rise in three-month Libor was the level of September eurodollar futures EDU1 which will expire on Monday.

The Sept. eurodollar contract last traded at 99.6475, implying a three-month Libor of 0.3525 percent, which is only a tad above Friday's fixing level.

"We are getting the final convergence right now between cash and futures," Manzara said. (Additional reporting by William James in London; Editing by Andrew Hay)