MONEY MARKETS-Interbank lending costs ease, T-bill rates rise

* Dollar Libor eases, spread vs OIS steady

* U.S. Treasury bill yields edge up

* Euro, sterling Libor/OIS spreads narrowest in 3 months

(Adds U.S. developments, more comments, byline)

By Ian Chua and John Parry

LONDON/NEW YORK, Jan 6 (Reuters) - The cost of bank-to-bank lending eased on Tuesday and yields on ultra short-dated government debt edged up, hinting that risk aversion is slowly retreating from the historical extremes reached in 2008.

The collapse of major entities such as Lehman Brothers last year dealt a severe blow to confidence among banks, heightening distrust and causing lending between financial institutions to grind to a halt.

Since then, central banks around the world have funnelled cash to banks and introduced measures like guaranteeing their debt, helping to calm the interbank money market.

The big question this year is whether banks will start lending to each other again without central bank assistance, analysts say.

The behaviour of London interbank offered rates (Libor) over the coming days and weeks will be a crucial signal of whether or not liquidity is returning to money markets, said London-based Laurence Mutkin, analyst at Morgan Stanley.

"If not, authorities around the world will find they still have a lot of wood to chop -- and, monetary policy being a tool that requires money-market liquidity to be effective -- they will need unconventional tools with which to do the chopping, so to speak."

In the latest of a string of unconventional policy measures to support financial markets and the U.S. economy, the Federal Reserve on Monday began buying U.S. agency mortgage bonds, kicking off its purchase programme of as much as $500 billion aimed at helping to turn around a slumping housing sector.

SENTIMENT IMPROVING

Investor sentiment generally appeared to be improving in the new year with prospects of new fiscal stimulus plans by U.S. President-elect Democrat Barack Obama and in Germany helping boost appetite for riskier assets such as stocks.

U.S. Treasury bill rates rose as investors continued to venture tentatively out of the haven of ultra short dated government securities into riskier assets such as stocks and corporate bonds.

A $24 billion auction of 4-week U.S. Treasury bills was sold at a high rate of 6 basis points on Tuesday, up from 3 basis points at a sale last week and up from zero earlier in December when panicked investors rushed to the comparative safety of short-dated government paper.