UPDATE 1-Libor strains ease as spreads narrow, notably stg

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By Jamie McGeever

LONDON, May 13 (Reuters) - Money market strain showed further signs of easing on Tuesday as the premium paid for raising interbank dollar, euro and sterling funds over expected central bank target rates of overnight funds tightened further, especially in sterling.

The Bank of England said on Tuesday it will maintain its expanded three-month money auctions in June and July but would reduce the amount of funds on offer to 5 billion pounds.

The Bank will also hold an auction of 1.6 billion pounds of three-month money next week, on May 20. For more, click on link [ID:nLAC002832].

The spread between three-month London interbank offered rates (Libor) for dollar funds over three-month T-bill yields -- known as the TED spread -- tightened further below 100 basis points to its narrowest in almost three months.

But the narrowing of money market spreads and further off tensions in these markets masked jitters surrounding other financial markets on Tuesday, which pushed equities lower.

France's biggest retail bank Credit Agricole (CAGR.PA: Quote, Profile, Research, Stock Buzz) said it would look to raise almost 6 billion euros ($9 billion) in a rights issue to shore up its balance sheet hit by credit-related writedowns at its investment bank arm Calyon.

Calyon announced writedowns of more than 1.2 billion euros, the bank reported on Tuesday, which will hit first quarter profits.