MONEY MARKETS-Bank rates at record low, earnings fan hopes

* Three-month dollar, euro, sterling Libor at record lows

* Strong start to Q2 earnings season fuels optimism

* Bank of America, Citigroup results disappoint

(Updates market action, changes dateline, previous London)

By Richard Leong and George Matlock

NEW YORK/LONDON, July 17 (Reuters) - Interbank rates on three-month dollars, euros and sterling posted record lows on Friday, as mostly solid earnings bolstered confidence in a U.S. economic recovery and lowered lending premiums.

Disappointing second-quarter results from Bank of America (BAC.N) and Citigroup (C.N) pared some hopes of growth resuming in the near future, analysts and traders said.

Investors also monitored CIT Group's CIT.N scramble for cash to stave off bankruptcy, and concluded its demise will inflict minimal damage to the financial system.

"The CIT story is on everyone's radar, but it has not affected the money market," said Deborah Cunningham, chief investment officer of money markets with Federated Investors in Pittsburgh.

On Friday, CIT, a major lender to U.S. small and medium businesses, is said to be in talks with JPMorgan & Chase (JPM.N) and Goldman Sachs (GS.N) to secure short-term financings. For more, see [ID:nN17353363]

Earlier this week, JPMorgan, the No. 2 U.S. bank by assets and Goldman, the biggest U.S. securities firm, reported surprisingly strong quarterly results, sparking this week's rally on Wall Street and demand for other risky assets.

On Friday, Bank of America and Citigroup, the No. 1 and No. 3 U.S. banks by assets, fell short of the elevated expectations set by Goldman and JPMorgan. [ID:nN17468434]

Despite those results misses, analysts said overall lending conditions continued to improve.

The three-month London interbank offered rate (Libor) for dollars eased to 0.50375 percent, setting a record low for a second day.

Equivalent three-month Libor for euros and sterling also hit fresh lows at 0.94000 percent and 0.96025 percent.

For more on Friday's Libor fixings, see [ID:nLH37148]