While euro-priced interbank rates extended their fall to fresh five-month lows on a glut of liquidity from the European Central Bank and expectations of a further rate cut in the coming two months, dollar funding costs ground higher. London interbank offered rates for three-month dollars rose to their highest since July 2010 at 0.46056 percent. The cost for European banks to swap euros into dollars was at its highest since late 2008, according to three- and six-month euro/dollar cross currency basis swaps . In the repo market, spreads also widened although they were off extremes hit last Wednesday after clearing houses LCH.Clearnet SA and Italian domestic clearer Cassa di Compensazione e Garanzia (CC&G) raised initial margin calls applied to Italian debt. The three-month Italian general collateral (GC) was bid around 1.4 percent, a level seen early last week, according to ICAP. That compared with the German equivalent which was little changed on the day at 0.3 percent. "As regards the Italian repo market I don't think anyone would suggest we are out of the woods. There's no great relief seen," said Chris Clark, an analyst at ICAP. "The fact that (Greek Prime Minister Lucas) Papademos and (Italian prime minister-designate Mario) Monti are on the verge of being installed is seen as no more than what the market had expected. There's no sense of great relief, and it didn't take long for debt markets to start pushing wider this morning." Italian bond yields rose higher above 6 percent again, with benchmark 10-year yields rising to an intra-day high of 6.82 percent, near the 7 percent level widely deemed unsustainable to finance the country's huge public debt. Focus will be on the ECB's tender of one-week funds on Tuesday for signs of whether more banks will be forced to depend on the central bank's liquidity provisions, especially for term-funding which has all but dried up save for the best credits. Commerzbank strategists said the central bank might have to step up its extraordinary measures and provide loans of up to two-year maturity in addition to its reintroduced three-month and 1-year liquidity. "Politics have become the driver of valuations also in money markets, as it is the sovereign debt concerns which eventually also stoke the counterparty credit concerns," Commerzbank strategist Benjamin Schroeder said. "Political processes to solve the sovereign debt issues take time, suggesting that the ECB will have to step up in the meantime also in money markets."