US investors remain cautious on the region, which is facing heavy sovereign and bank debt maturities this year.
Money funds have been steadily paring back their short-term loans to European banks for the last six months, and few are seen as likely to return with a resolution to the debt crisis still seemingly far away.
"Most money market investors have already cut their exposures to Europe and given that most of them are very conservative, I don't think they are likely to come back into the market until the headlines are in the rearview mirror," said Alex Roever, head of short-term rates strategy at JPMorgan in New York.
There was no shortage of bad news in the region on Thursday, despite France drawing solid demand for 8 billion euros($10.3 billion) in new long term debt, its first debt sale of the year.
In Italy, UniCredit's shares tumbled more than 14 percent on concerns over its plan to offer new shares at a 69 percent discount. The bank needs to raise 8 billion euros under new European banking regulation.
Spain's incoming conservative government dismissed ideas that it would set up a bad bank to sequester toxic property assets in the region.
The news came a day after economy minister Luis de Guindos told the Financial Times that he expected the bank to set aside 50 billion euros in extra provisions to protect against losses on the bad assets.
Hungary's credit default swap costs also surged to new records for the second day. The country needs to fund around $16.5 billion this year to repay debt owed to bondholders and the International Monetary Fund.
Discount loans offered to banks by the European Central Bank have helped ease some funding pressures, though market funding costs remain elevated.
The ECB pumped nearly half a trillion euros into the euro zone financial system in its Long Term Refinancing Operation (LTRO) last month and is due to make a second offer of three-year loans in February.
But concerns over the debt crisis have prompted banks to hoard that cash, depositing 443.701 billion euros at the ECB overnight.
"The dollar swap costs are higher than would be implied by the borrowing costs of the LTRO," said JPMorgan's Roever. "A lot of that has to do with remaining uncertainty on the fiscal side about how the European situation is going to be addressed."
The premium to swap euros into dollars for three months edged up to 1.11 percent. It had traded below 0.50 percent in the first half of last year, before fears over the Euro zone intensified.
European nations need to finance around 262 billion euros in the first quarter and 865 billion this year, according to Action Economics, with most fears centered on Italy which needs to raise around 215 billion euros.
"It still remains a market that is moribund," said Padhraic Garvey, head of investment grade debt strategy at ING. "Counterparties don't view each other any differently today than they did a couple of months ago."
Three-month dollar Libor was unchanged on Thursday for the second day at 0.58250 percent.
Copyright Reuters, 2011