March 13, 2009 / 5:14 AM / 10 years ago

REFILE-MONEY MARKETS-Dollar costs fall on more easing hopes

(Refiling to fix lead)

* Dollar funding costs fall on U.S. banks, quantitative easing

* Korea cross-currency swaps show dollar demand rising

HONG KONG, March 13 (Reuters) - Dollar funding costs fell further on easing worries about the availability of funds after U.S. banks reported that business was improving and as hopes that central banks would add more cash to the banking system boosted sentiment.

In Singapore, 3-month dollars SIUSDD=ABSG were quoted at 1.31357 percent on Friday from Thursday’s 1.32583 percent. It is still some way off from its last leg of increases which began in mid-January from 1.09 percent.

“Conditions have gotten easier and that’s a result of central banks’ capacity to inject funds which they will continue to do,” said Patrick Bennett, strategist with Societe Generale.

“Quantitative easing is good in itself but what it requires now is for banks to start lending that money out,” he said.

The Swiss National Bank announced bold steps on Thursday to fight deflation, surprising markets with intervention to weaken the Swiss franc as well as an interest rate cut as it forecast a deep recession.

Meanwhile in the U.S. banking industry, Bank of America (BAC.N) provided this week’s latest reassurance from a sector which has received billions of dollar in government aid. The largest U.S. bank said it had been profitable in January and February.

Bank of America Chief Executive Kenneth Lewis echoed the heads of Citigroup (C.N) and JPMorgan Chase & Co (JPM.N) who said earlier this week their banks were in the black for this year.

In South Korea, cross-currency swaps showed some demand for dollars as the country readied itself to pay back or refinance $194 billion in foreign currency debt this year.

Cross-currency swaps for one year KRWCRS=KMBC fell to minus 1.25 percent from minus 0.10 percent, implying onshore banks had to pay 1.15 percent more to swap won into dollars.

They are down from the rate of plus 0.5 percent prevailing in mid-December. Banks are still paying interest to swap won for dollars, rather than gaining a benefit for doing so as has been the case traditionally.

South Korea’s official foreign reserves stand at $201.5 billion, the sixth-largest in the world. The government has insisted they are sufficient to absorb any potential crisis over the foreign liabilities.

But a sell-off by foreign investors of their holdings, worth more than $100 billion, would aggravate dollar shortages in South Korea’s currency market caused by the global credit crunch. Calyon Corporate & Investment Bank said in a report dwindling orderbook and order cancellations by South Korean shipyards, which account for around a third of the world market, could mean an immediate need for foreign currency to settle the hedges.

“As a going-concern for Korea and its dollar shortage situation/major reliance on foreign capital markets, we see ongoing risks particularly in its strategic export sectors such as ship-building, autos and technology, the report said. (Reporting by Umesh Desai; Editing by Jan Dahinten)

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