MONEY MARKETS-Global bank rates fall on rate-cut hopes

* Libor falls broadly on hopes of steep central bank cuts

* Sterling and dollar/OIS spreads widen, however

* BoE seen cutting rates by 1 point, ECB and Fed by 50 bps

* Fed extends life of three liquidity measures (Recasts lead, changes byline, dateline, previous LONDON)

By Richard Leong

NEW YORK, Dec 2 (Reuters) - The rates banks charge each other for unsecured funds fell on Tuesday in anticipation of aggressive monetary policy easing from central banks in a bid to avert a deep global recession and restore market stability.

The Federal Reserve, European Central Bank and the Bank of England are expected to make deep cuts in their rate targets in the coming days, following a whopping one percentage-point move from the Reserve Bank of Australia on Tuesday.

The volume of interbank lending seemed to be tapering off, however, as banks begin to close their books for the year and will likely keep rates from falling much further from current levels, analysts said.

"Continued balance sheet stress moving into year-end should prevent fixings from coming in much," said T.J. Marta, fixed income strategist at RBC Capital Markets in New York.

Overnight to 12-month rates fell by 1 to 8 basis points for borrowing in dollar, euro and sterling in the London unsecured interbank market, according to the latest fixings from the British Bankers' Association.

But there was evidence of renewed reluctance among banks to lend to each, as spreads between three-month London interbank offered rates (Libor) and Overnight Indexed Swap rates (OIS) or the expected central bank policy rates, grew.

The spread of three-month Libor over OIS for sterling widened by 11 basis points to 242 basis points, while the three-month spread on dollar Libor over OIS widened by two basis points. For more, see [ID:nL2396034]

Dollar Libor and spreads have been elevated in the past couple of weeks, despite evidence banks in Britain and in the United States were able to raise more funds under government guarantees and after U.S. primary dealers and commercial banks increased borrowing from the Fed's special windows for money market funds and commercial paper.

Given this reliance on the Fed for funds, the U.S. central bank said on Tuesday it was extending three of these emergency liquidity programs -- the Primary Dealer Credit Facility, Asset-Backed Commercial Paper Money Market Fund Liquidity Facility and Term Securities Lending Facility -- by three months until April 30, 2009. [ID:nN02534408]

STEEP RATE CUTS

Given the grim outlook for United Kingdom, analysts are expecting another big rollback in interest rates from the Bank of England after a hefty one-and-a-half percentage point cut on Nov. 6, sending benchmark rates there down to 3.00 percent.