Euribor rates ease after ECB 3-year cash injection

FRANKFURT: Key euro zone bank-to-bank lending rates fell on Thursday after banks bid for almost half a trillion euros in the European Central Bank's first-ever injection of 3-year liquidity.

In the first of two opportunities to get the 3-year money, allotment of 489 billion hit the highest level in a single ECB liquidity operation. Banks will receive the money on Thursday.

It is the ECB's latest and most dramatic attempt so far to help banks bolster their finances and a move it hopes will minimise the chances of banks responding to the current euro zone turmoil by slamming the brakes on lending.

Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 1.410 percent from 1.416 percent on the prospect of a flood of new cash entering the financial system.

Longer-term rates also fell. Six-month rates ticked down to 1.662 percent from 1.666 percent while 12-month rates eased to 1.995 percent from 1.997 percent.

Shorter-term one-week rates -- most heavily influence by excess liquidity, at a hefty 297 billion euros according to Reuters calculations -- bucked the trend and rose to 0.861 percent from 0.757 percent.

Overnight rates rose to 0.611 percent from 0.605 percent.

The recent intensification of the euro zone debt crisis has left a growing pack of banks virtually locked out of open funding markets and reliant on the ECB.

The ECB said on Monday risks to financial stability in the euro zone increased considerably in the second half of this year, largely due to contagion effects from the debt crisis and bank funding strains.

In response the ECB has already reinstated some of its most potent crisis-fighting tools.

But banks still distrust each other and rather deposit their money at the ECB's overnight facility than lend to each other. Latest figures show banks deposited 265 billion euros at the central bank. Emergency overnight borrowing also remained high at above 7 billion euros.