WRAPUP 4-Money markets ease as cen banks offer dollar funding

(adds details of Libor fixings, background)

* ECB, BoE, SNB to offer unlimited dollar funds and regular weekly auctions

* 3-month euro Libor posts biggest decline this year

* 3-month dollar Libor has steepest fall since March

* Euribor rates ease across the board

By Marc Jones and Vidya Ranganathan

FRANKFURT/SINGAPORE, Oct 13 (Reuters) - Money market rates fell on Monday after Europe's central banks promised to lend commercial banks as much U.S. dollar funding as they need.

In the latest joint bid to thaw frozen money markets, the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank also scrapped their existing dollar auctions in favour of a new fixed rate system.

The moves were welcomed by traders and had an instant impact on bank-to-bank lending rates.

The interbank cost of borrowing in dollars, sterling and euros all fell. Three-month euro Libor posted its biggest decline this year, three-month dollar Libor had its steepest fall since March and Euribor rates eased across the board.

The Libor premium over anticipated official borrowing costs measured using average Overnight Index Swap rates -- a key gauge of financial market stress -- also dropped.

"I think this will be hugely helpful, to be honest and the market has a better feel today," said one London-based money market trader.

"Given the fact that they are going to allot whatever you need it should bring levels down particularly at the short end."

One-week, 1-month and 3-month dollar funds are all included in the plans. The fixed rate of interest will be set by the banks on the day of each operation.

Coming on top of a wide range of bailouts, guarantees and liquidity injections potentially worth trillions of dollars, the new measures are the latest attempt by central banks to persuade commercial banks to lend to one other again.

"Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction," the Fed said in a statement.

"Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets."

The Bank of Japan said it would also consider similar measures while the Fed will have to increase its currency swap lines with the ECB, SNB and BOE by an unspecified amount to fund the operations.

"It's extremely positive but I think the key focus will be what the fixed rate is," said another trader in London. "The closer it is to the Fed policy rate (1.5 percent) the more positive the market reaction will be."

"You also have to remember we don't get our hands on the 84-day one until November 3."

RECORD DEPOSIT

The move follows top-level meetings over the weekend in Washington and Paris, where policymakers vowed to bring an end to the credit rout which is threatening to tip the global economy into recession.

They appear to have had the desired effect. The British, German, and Italian governments came in with force on Monday, both announcing multibillion dollar packages aimed at shoring up their financial systems.

Europe's stockmarkets surged on the back of the plans.

In euro lending markets, Euribor EURIBOR= rates dropped as the impact of changes by the European Central Bank to its lending rules and benchmark rate continued to pay dividends. (For story please click [ID:FAE002576])

Banks also deposited a record 155 billion euros into the ECB's overnight account, topping the previous record by 50 percent as they got to grips with more attractive rates set last week. (For story please click [ID:FAT004424])

U.S. markets are closed on Monday and traders in Singapore said there were few transactions in dollar deposits. Those that did occur were for tom-next funds, where banks borrow for a day from Tuesday to Wednesday.

"Most people are on the sidelines. Tom-next range is between 4 and 6 percent but most trades are between 4-4.5," said a trader in Singapore.

The European and U.S. initiatives are complemented by efforts underway in countries including India, Indonesia and Australia to free up liquidity flows in their economies as well.

Just a day after the Australian government decided to guarantee the country's entire deposit base and back refinancing requirements of Australian banks, the central bank injected A$2.849 billion ($1.9 billion) in its regular daily operation.

That was above an estimated need of A$1.05 billion, effectively adding around A$1.8 billion and keeping the banks' cash cushion with the central bank around historic highs.

India cut the cash reserve ratio for banks by 150 basis points to 7.5 percent on Saturday, releasing about $12 billion into the banking system. Overnight call rates INROND= eased about 5 percentage points from Friday to about 10 percent. (Additional reporting by Krista Hughes; editing by Patrick Graham and Victoria Main)