Overnight interbank dollar rates continue to inch lower

LONDON, Oct 17 (Reuters) - The interbank cost of borrowing overnight dollars fell again in Europe on Friday although longer rates, including those for euros and sterling, were slower to ease with banks still cautious of lending for longer periods.

Money market stresses are showing some signs of easing but longer "term" rates remain elevated, with banks still inclined to hoard the billions of dollars of liquidity central banks have pumped into money markets rather than lend it out.

In early London trading on Friday interbank rates for overnight dollar deposits were indicated in a range of between 1 and 1.5 percent USDOND=, compared with 1-2.5 pct on Thursday.

Three-month dollar deposit rates early on Friday were indicated in a slightly narrower range of 4.25-4.8 percent USD3MFSR= compared with 4.2-5.1 percent early in London on Thursday. They were briefly indicated as low as 2.7 percent overnight in Asia.

All dollar, euro and sterling Libor rates, with the exception of overnights euros, were fixed lower on Thursday for the third consecutive day as aggressive steps taken recently by authorities to unclog money markets began to slowly take effect.

But strains remain. Libor/OIS spreads, a closely-watched measure of financial dislocation, widened slightly. That spread is the difference between Libor rates and anticipated central banks rates ahead.

Three-month sterling interbank rates GBP3MD= were last indicated around 5.2-6.2 percent versus 5.4-6.2 percent early Thursday, and euro three-month rates in a narrower range of 4.9-5.04 percent compared with 4.75-5.25 percent EUR3MD=.

There is typically a premium on deposit rates over Libor fixings because Libor is taken from a smaller sample of large banks in the market.

Deposit and Libor rates are only indicative prices of where banks are lending to each other, not necessarily the levels at which lending is actually being carried out.