Nov 9 (Reuters) - A key measure of what banks charge each other to borrow dollars for three months on Friday posted its smallest weekly increase in five weeks as the U.S. Federal Reserve hinted it may raise key short-term lending rates in December.
The London interbank offered rate to borrow three-month dollars rose 0.35 basis point to 2.61813 percent, a fresh decade-peak.
On the week, three-month LIBOR climbed nearly 2.6 basis points, which was its slowest weekly increase since a 0.97 basis point gain in the week of Oct. 5.
Three-month LIBOR has risen for 12 consecutive weeks, stemming from the Fed’s rate hikes, rising U.S. government borrowing and a shrinking Federal Reserve balance sheet.
LIBOR is the benchmark rate for $200 trillion of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.
Fed policymakers, as expected, kept their target range on short-term borrowing costs at 2.00-2.25 percent following a two-day meeting this week.
They acknowledged a further tightening of the labor market, which traders interpreted to mean they are on track to gradually ratchet up interest rates.
“The labor market has continued to strengthen and ... economic activity has been rising at a strong rate,” the Fed said in its latest policy statement released after its two-day policy meeting.
Interest rates futures implied traders saw a 76 percent chance the Fed would hike rates by a quarter percentage point at its Dec. 18-19 meeting, which would mark its fourth rate increase in 2018, according to CME Group’s FedWatch program.
Reporting by Richard Leong; Editing by Bernadette Baum