Key Euribor rate rises after Trichet comments

FRANKFURT: Key euro-priced bank-to-bank lending rate increased on Wednesday as expectations the European Central Bank might cut policy rates next month were scaled back and sovereign debt turmoil increased banking system jitters.

ECB policymakers have given mixed messages on interest rates this week. But its president Jean-Claude Trichet stressed on Wednesday the central bank is an anchor of stability, a likely signal that it is not about to change course and cut rates fast.

Excess liquidity -- currently 181 billion euros, according to Reuters calculations -- rose slightly, but the market put more weight on rate expectations and concerns over the banking system.

The three-month Euribor rate -- traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending -- rose to 1.544 percent from 1.537 percent on Tuesday.

Market rates rose across the board. Six-month Euribor rates increased to 1.746 percent from 1.738 percent, while 12-month rate rose to 2.075 percent from previous 2.064 percent.

One-week rates increased to 1.228 percent from 1.211 percent. Overnight rates fixed at 1.071 on Tuesday, up from 1.058 percent the day before.

Uncertainty created by the debt crisis engulfing much of southern Europe has increased banks' reluctance to lend to each other and prompted many banks to stock up on ECB euro funding. They took 208 billion euros in one-week funds this week -- the highest volume since early February.

The deepening crisis has already forced the ECB back into emergency mode. It has reintroduced six-month euro funding, a measure it had previously mothballed, and extended limit-free funding in all its lending operations until mid-January.

The central bank is also back buying sovereign bonds again, although it slowed purchases last week.

Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.

Copyright Reuters, 2011