MONEY MARKETS-Bank-to-bank euro rates continue to fall

(Updates with Libor fixings)
FRANKFURT/LONDON, Feb 2 (Reuters) - Bank-to-bank euro
lending rates fell on Thursday as the ECB's injection of almost
half a trillion euros in 3-year loans in December and the
prospect of more to come later this month continued to drive
rates down towards 1 percent.
The European Central Bank's 489 billion euro injection of
ultra-long-term funds has seen the amount of excess liquidity in
the banking system balloon to record levels and is
putting heavy downward pressure on the rates banks charge each
other in open markets.
With banks awash with long-term funds, they took 116 billion
euros in one-week funds at an ECB refinancing operation on
Tuesday, 16 billion less than the previous week and slightly
under than the 120 billion forecast in a Reuters poll.

London interbank offered rates for three-month euros
fixed at an almost one-year low of 1.03971 percent
versus 1.04943 percent on Wednesday, having fallen some 30 basis
points since late December.
Three-month Euribor rates, traditionally the
main gauge of unsecured interbank euro lending and a mix of
interest rate expectations and banks' appetite for lending, fell
on Thursday to 1.108 percent from 1.115 percent, hitting the
lowest level since early March of last year.
Rates in other maturities also dropped. Six-month rates
fell to 1.401 percent from 1.409 percent, while
12-month rates dropped to 1.737 percent from 1.745
percent.
One-week rates - most heavily influenced by
excess liquidity, now at 486 billion euros according to Reuters
calculations - fell to 0.391 percent from 0.396 percent.
Overnight rates also inched down to 0.363 percent from
0.380 percent the previous day.
Three-month dollar Libor rates also fell to
0.53060 percent from 0.53710 percent on Wednesday.
While it is still not clear whether the money from
December's three-year ECB loan operation is filtering through to
companies and consumers, ECB President Mario Draghi said last
week that the move had avoided "a major, major credit crunch".

Data last week showed that before the ECB three-year loans
were taken, lending to euro zone companies fell at the fastest
pace on record in December. On Wednesday the ECB survey of banks
showed a major tightening of banks' lending rules was expected
in the coming months while demand for loans was expected to
plunge.
The ECB will offer another round of three-year loans on Feb.
29. Draghi and other policymakers have said they again expect
"substantial demand", meaning market rates are expected to come
under renewed downward pressure in the coming months. Some money
market experts also believe the bank may hold at least one more
three-year operation after that.
Interbank money markets, often the source of lending to the
wider economy, remain dysfunctional as a result of the euro zone
debt crisis. While short-term lending has improved in recent
weeks, traders say banks remain reluctant to lend to peers for
longer than a month.
With high amounts of excess liquidity in the system, banks
are currently depositing much of the extra cash back at the ECB.
Overnight deposits at the ECB hit a record high of 528
billion euros at the peak of the ECB's last reserves period and
currently stand at a still-hefty 486 billion euros.
Short-term market rates are well below the main policy rate
due to the excess cash, and the overnight deposit rate at 0.25
percent serves as a floor for money markets.

Euribor rates are fixed daily by the Banking Federation of
the European Union (FBE) shortly after 1000 GMT.
* For a table of the latest Euribor fixings for terms of one
week to one year, double click on
* For a table of the previous day's fixings of EONIA swap
rates, which show market expectations for future overnight
lending rates, double click on
* For graphs of historic Euribor and EONIA swap rates, right
click on the links in angle brackets below, and select 'Related
Graph'
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(Reporting by Frankfurt newsroom; Editing by Susan Fenton)