UPDATE 1-ECB lends 3-month funds at highest rate since 2000

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By David Milliken

FRANKFURT, Dec 11 (Reuters) - The European Central Bank lent 60 billion euros ($88 billion) in three-month funds to banks on Tuesday at an average rate of 4.88 percent, the highest since November 2000, in the face of continued credit market tension.

Banks showed strong demand in the auction for funds, with 122 bidding for a total of 105.126 billion euros worth of refinancing. The lowest successful bid, or marginal rate, was 4.81 percent and the highest rate bid was 5.05 percent.

The results were above those foreseen in a Reuters poll on Monday, when traders predicted an average rate of 4.79 percent and a marginal rate of 4.75 percent. At the ECB's last tender of three-month funds on Nov. 28, the average rate was 4.70 percent and the marginal rate 4.65 percent.

The high rates at the tender reflect fears of a shortage of liquidity at the end of the year combined with pre-existing concerns about banks' hidden losses from the U.S. subprime mortgage crisis.

Three-month Euribor rates <EURIBOR3MD=> -- an average of the rates offered by major banks and base for many commercial loans -- fixed at 4.927 percent just before the ECB tender result, their highest level since December 2000.

Market rates were little changed after the announcement at a bid/ask spread of 4.85/4.95 percent according to Reuters data <EUR3MD=>.

Rates at an ECB tender of longer-term refinancing were last higher on Nov. 29, 2000, when the average rate was 5.05 percent and the marginal rate was 5.03 percent. But then the ECB's key interest rate was at its historic peak of 4.75 percent, compared to 4 percent now.