* Good demand for U.S. 4-week, one-year bills * 3-month Euribor rates fall to lowest since Sept 2010 * ECB overnight deposits hit high of 827.5 bln euros By Ellen Freilich NEW YORK, March 6 (Reuters) - Demand was strong for U.S. Treasury bills on Tuesday while bank-to-bank Euribor lending rates fell to their lowest levels in a year and a half after the European Central Bank lent money at low rates last week to fortify the European banking system. The value of bids received was four-and-a-half times the value of bids accepted for the $40 billion in four-week bills the Treasury sold. The Treasury awarded more than half - 55.8 percent - of the bids at the high rate of 0.060 percent. Demand was also robust for the $26 billion in one-year bills the Treasury sold with 4.74 ratio of the value of bids received for the securities over the value of bids accepted. The Treasury sold the $26 billion in one-year bills at a high rate of 0.17 percent, awarding 35.46 percent of the bids at the high. [ID: nEAP10D601] In the four-week sale, dealers made their biggest bid since Dec. 20 when year-end was generating a "massive bid" for short-dated bills, said Thomas Simons, money market economist at Jefferies & Co. Despite their big bid, however, dealers got just 49.2 percent of the auction, their smallest portion since July 26, due to an aggressive bid from the buyside, he said. Elevated repo rates deterred aggressive bidding at auctions in February, but did not seem to have a similar impact on Tuesday's auctions, Simons said. General collateral rates rose on the large cash drain caused by the February 29 settlement of the three-, 10-, and 30-year Treasury auctions comprising the February refunding and the bill auction settlements on March 1. "More collateral combined with less cash equals higher rates and it looks like the market is working through this," Simons said. The sale of 52-week Treasury bills offered the highest yields - 17 basis points - in a year-bill auction since July 26 and the auction's $26 billion size was the largest since May 2010. But despite increased supply in recent weeks and less favorable financing conditions due to the higher repo rates, the auction went "fairly well," Simons said. In Europe, meanwhile, Euribor rates were expected to keep falling after the European Central Bank's second injection of low-cost funding last week. The ECB added another 530 billion euros of funding to the 489 billion euros that banks took up in December. Three-month Euribor rates fell to 0.920 percent from 0.934 percent, their lowest since late September 2010. The huge cash boost for euro-zone banks prompted economists to reverse their forecasts for interest-rate cuts this year in a Reuters poll published last week. The ECB is now expected to keep rates on hold at 1.0 percent until deep into 2013, the poll showed. A Reuters poll of traders predicted that the broader euro- zone economy would get only limited benefit from the ECB's funding bonanza because banks were hoarding the money rather than lending it to businesses and consumers. ECB President Mario Draghi recently urged banks to help strengthen economic growth by lending the money they borrow from the central bank at very low rates to euro-zone households and businesses.