Interbank 3-mth dollar funding rates at year's high

LONDON, Sept 29 (Reuters) - Interbank dollar borrowing rates and premia paid over U.S. government borrowing rates stayed high on Monday, as money markets reacted cautiously to the expected passing this week of a $700 billion U.S. bank stabilization plan as European banks felt the heat of the crisis too.

Heightened stress in the European banking system, where authorities were forced to rescue Belgium's Fortis and the UK's Bradford & Bingley, added to the global uncertainty despite the news from Washington that agreement has been reached on the plan.

For more on the U.S. bailout plan and deepening European banking stress, see [ID:nLT387116].

In early London trade on Monday the interbank cost of borrowing dollars for three months was indicated as high as 5.27 percent USD3MD=, the highest this year, according to Reuters data.

Friday's fixing of three-month London interbank offered rates by the British Bankers Association was 3.76188 percent USD3MFSR=, and ICAP's three-month dollar New York Funding Rate was 4.1389 percent USNYFR3M=.

The closely-watched TED spread, or the difference between these market-based dollar rates and three-month U.S. government borrowing rates, fluctuated in a wide range of around 280 to 440 basis points in early London trade on Monday.

That spread had ballooned to almost 500 basis points earlier this month, the widest in over a quarter of a century. The cost of borrowing dollars for tomorrow next day delivery, which strides the important quarter end for accounting purposes, was indicated as high as 5 percent USDTND=, Reuters charts showed.

Overnight dollar rates were indicated around 2 percent, the Federal Reserve's target rate as the European Central Bank increased its provision of dollar liquidity.