The three-month Euribor rate euro lending and a mix of interest rate expectations and banks' appetite for lending -- eased to 1.078 percent from 1.086 percent.

Shorter-term one-week rates also fell, dipping to 0.743 percent from 0.805 percent and six-month rates decreased to 1.348 percent from 1.352 percent, while longer-term 12-month rates remained at 1.721 percent.

Overnight rates dipped further below the European Central Bank's refinancing rate on Thursday, fixing at 0.625 percent.

Banks kept their intake of ECB funding roughly unchanged this week. Excess liquidity currently stands at around 48 billion euros, according to Reuters calculations.

The ECB left euro zone interest rates on hold at a record low of 1 percent this month and tempered speculation of a near-term rate hike by saying last month's larger-than-expected jump in inflation had not altered its medium-term assessment.

Comments from ECB policymakers have also bolstered expectations that the bank could resume the process of gradually removing its crisis support next month.

The intensification of the euro zone debt crisis at the end of last year forced it to delay its scale-back plans, but ECB watchers say it may resurrect the idea of limiting the amount of 3-month -- and possibly 1-month -- funding on offer to banks.

ECB President Jean-Claude Trichet repeated on Monday that the health of money markets had improved, although he has been careful to add that some key markets remain dysfunctional.

The ECB is already back to its pre-crisis range of funding. Three-month loans are once again the longest maturity on offer and banks have now paid back all the six-month and 12-month loans the ECB injected during the turmoil.