FRANKFURT, Jan 8 The key euro-priced
bank-to-bank lending rate rose on Wednesday after banks handed
back the extra liquidity they took from the European Central
Bank to ward off year-end tension in money markets.
On Tuesday, banks took 112.5 billion euros ($153.07 billion)
in the ECB's main weekly refinancing operation - 56 billion
euros less than the week before, when they stocked up for the
tense end-of-the-year period.
The ECB also successfully drained funds to offset the full
value of government bonds it still holds from its now-ended
bond-buying programme, after three consecutive failures.
This means that excess liquidity - the amount
of money in the market beyond what banks need for their
day-to-day operations - will fall to about 150 billion euros
from 280 billion euros on Wednesday once the latest operations
are taken into account.
A drop in liquidity is seen pushing up market rates as
lenders rely less on central banks funding, with tension in
money markets easing. But there is also a risk that if rates
rise too quickly they may hold back the fragile recovery.
The ECB Governing Council will likely discuss the latest
developments at Thursday's policy meeting, but economists expect
the central bank to hold still for now.
On Wednesday, the three-month Euribor rate,
traditionally the main gauge of unsecured bank-to-bank lending,
rose to 0.281 percent from 0.280 percent.
The six-month Euribor rate ticked up to 0.383
percent from 0.381 percent, while the shorter-term one-week rate
jumped to 0.171 percent from 0.165 percent.
Overnight Eonia rose to 0.099 percent on Tuesday
from 0.096 percent in the previous session.
Euribor rates are fixed daily by the Banking Federation of
the European Union (FBE) shortly after 1000 GMT.
* For a table of the latest Euribor fixings for terms of one
week to one year, double click on
* For a table of the previous day's fixings of EONIA swap
rates, which show market expectations for future overnight
lending rates, double click on
* For graphs of historic Euribor and EONIA swap rates, right
click on the links in angle brackets below, and select 'Related
($1 = 0.7349 euros)
(Reporting by Eva Taylor; Editing by Paul Carrel)