MONEY MARKETS-Bank rates fall amid property market turmoil

* Interbank rates fall despite property market worries

* Dollar, euro 3-month Libor/OIS narrows, stg/OIS widens

* Euro 3-month euribor approaches 18-month low

* ECB overnight deposits up to 183 bln euros from 157 bln

* For up-to-the-minute news, click on FINEWS (Adds fresh quotes; changes byline, dateline, previous LONDON)

By Richard Leong

NEW YORK, Nov 19 (Reuters) - Interbank lending costs fell broadly on Wednesday, even as problems in the commercial real estate market revived worries about credit conditions and bank balance sheets.

Analysts generally agree credit strains have eased from the peak of the crisis in early October, stemming from the demise of Lehman Brothers, but they also quick to point out that market conditions are far from normal.

"Money market conditions have improved but they are far from healthy," said Michael Materasso, co-chair of the fixed-income policy committee at Franklin Templeton in New York. "It's going to a slow process. There are a multitude of problems going on in the financial system."

One of those trouble spots, which has been latent until this week, is the commercial property sector.

The spreads or risk premiums on commercial mortgage-backed securities (CMBS) have ballooned to record wides on concerns that a deep recession will batter values of office buildings and shopping malls.

In contrast to the turmoil in the CMBS market, the amount banks charge each other to borrow three-month dollars, euros and sterling fell on Wednesday in London, according to the British Bankers' Association.

The three-month dollar Libor declined to 2.17250 percent from 2.21750 percent at the fixing on Tuesday. For details, see[ID:nLJ569912]

The spread of three-month Libor over Overnight Indexed Swap (OIS) rates for dollars and euros narrowed marginally to 172 and 167 basis points, respectively, but the sterling equivalent edged one basis point wider to 219 basis points.

The spread expresses the three-month premium paid over OIS or expected central bank rates and is seen as a gauge of banks' willingness to lend to each other. A wider spread is seen as an indication of decreased inclination to lend.

REAL ESTATE RUMBLINGS