Money markets still stressed, reflecting bailout worries

LONDON, Sept 25 (Reuters) - Interbank dollar borrowing rates remained elevated and premia paid over U.S. government borrowing rates stayed wide in early European trade on Thursday as investors awaited developments from the U.S. Congress on a $700 billion plan to help ease the financial crisis.

The continued stress in global money markets highlights investors' concern surrounding the financial bailout plan, when it will be passed, and if so, how it will look.

In early London trading Thursday, the interbank cost of borrowing dollars for three months was indicated in a wide range between 3.4 and 4.7 percent USD3MD=.

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 range of around 300 to 420 basis points.

That spread had ballooned last week to almost 500 basis points, the widest in over a quarter of a century.

Three-month U.S. T-bill yields hovered around 0.5 percent US3MT=RR.

In the interest rates swaps market, the two-year dollar swaps spread was around 150 basis points USDSB3L2Y=RR US2YT=RR compared to Wednesday's record high of around 162 basis points. Swaps spreads are widely seen as an indicator of investor risk aversion and financial market turmoil: the wider the spread, the greater the stress, and vice versa.