MONEY MARKETS-Dollar LIBOR posts biggest weekly fall since May

NEW YORK, Dec 28 (Reuters) - A key gauge of interbank borrowing costs fell on Friday, resulting in the biggest weekly decline since May as major banks expect short-term interest rates to ease in the wake of recent market volatility and signs of slowing global growth.

The London interbank offered rate (LIBOR) to borrow dollars for three months decreased to 2.79700 percent from 2.8030 percent on Thursday. For the week, it fell 2.46 basis points, the steepest decline since the week of May 11.

U.K. financial markets, which set this rate, were closed on Tuesday for Christmas and on Wednesday for Boxing Day.

LIBOR is the benchmark rate for $200 trillion of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.

LIBOR reached its highest level in more than decade last week, propelled by rate increases from Federal Reserve, rising U.S. government borrowing and a shrinking Fed balance sheet.

LIBOR has fallen on expectations the Fed might slow or even its rate hikes in 2019, analysts said.

Reporting by Richard Leong Editing by Frances Kerry