MONEY MARKETS-Dollar costs fall for a second day as concerns ease, Fed eyed

* Three-month dollars in Singapore at lowest level so far
this month

* Euro FX swaps stabilize, interbank rates ease

* Near month Eurodollar futures edge higher before Fed
review

* One year swaps in India settle at more than two year peaks

HONG KONG, Dec 14 (BestGrowthStock) Dollar funding costs fell for
the second consecutive day on Tuesday as year-end strains in
money markets eased and as traders awaited a U.S. Federal
Reserve meeting later in the day.

Funding costs have increased in recent weeks as peripheral
European names have had to resort to various means including
raising dollars via FX swaps, forcing policymakers to take
steps to calm nervous year-end markets.

Three-month dollars in Singapore fell to its
lowest level this month at 0.30379 percent from 0.30422
percent on Monday.

At Tuesday’s fixing it is nearly a fifth of a basis point
lower than a three-month peak hit at the start of December,
indicating tensions over the euro zone debt crisis have
receded but not faded completely.

The discount on three-month euro/dollar forwards, or FX
swaps, eased to minus 6.85 points, a shade below minus 6.5
points last Thursday. A narrowing discount or a premium
suggests that European borrowers are willing to forgo a larger
chunk of relatively higher euro interest rates in exchange for
dollar funds.

Benchmark euro interbank rates and euro LIBOR
rates have fallen since last week, indicating recent steps
taken by the European Central Bank such as extending liquidity
operations and signaling a continuing intent to its bond
purchase program were taking effect.

Still, Standard Chartered analysts said in a note that the
downside on such rates would be limited as tiering for getting
access to funds within the euro-zone market still remained.

Near-month Eurodollar futures (0#ED:: ) eked out minor gains
but contracts beyond that were largely stable before a U.S.
Federal Reserve meeting later in the day where it is expected
to assess its controversial bond-buying plan against the
backdrop of tax cuts that could help boost U.S. economic
growth. [ID:nFEDAHEAD]

In India, one-year swaps held at more than two-year peaks
before a Reserve Bank of India meeting on Thursday. It is
likely to hold interest rates steady, but might suggest
another hike cannot be ruled out completely in the near term
due to high inflation.

One-year overnight indexed swaps settled at 6.95
percent, its highest level since October 2008,as a shortage of
rupee funds in the interbank market have pushed rates higher.
Swap rates have risen for the previous three consecutive weeks.

Reflecting the cash squeeze in the interbank market,
lenders have had to line up at the central banks repo lending
window, borrowing more than an average of 1 trillion rupees
daily in recent weeks and pushing interbank rates to
6.65 percent, well above the central banks repo rate or
overnight lending rate of 6.25 percent.
(Additional reporting by Swati Bhat in MUMBAI)
(Editing by Kim Coghill)

MONEY MARKETS-Dollar costs fall for a second day as concerns ease, Fed eyed