MONEY MARKETS-Euro rates edge up before expected ECB hike

* Euro money rates firm ahead of historic ECB move

* Analysts expect more ECB hikes to curb inflation

* BOJ leave rates near zero, BOE seen on hold

* Upbeat job data knock Aussie rates futures lower

By Richard Leong

HONG KONG, April 7 (Reuters) – European money market rates
edged higher on Thursday as traders braced for a historic rate
hike from European Central Bank and awaited any signals on
whether it might be on an aggressive tightening campaign to cool
rising price pressures.

ECB’s widely expectedly quarter-point rate hike from 1
percent would its first such move since July 2008. In sharp
contrast, the Bank of Japan left policy rates near zero earlier
in the day as it looked to help its economy after last month’s
devastating earthquake and tsunami.

The ECB has signaled its intention to contain upside price
pressures, as high oil and food prices forced up regional
inflation in March at a rate of 2.6 percent, the highest since
late 2008.

But ECB policymakers will likely not be aggressive in
raising rates since Spain, Portugal and other peripheral
countries continued to struggle with their finances, analysts
said.

This outlook “implies a high probability of a further rate
rise in June or July – and more to follow,” BNP Paribas
economist Ken Wattret wrote in a note late Wednesday.

Wattret said ECB’s target for its refinancing rate will
likely rise to 2.5 percent by mid-2012 and 3.5 percent in 2013.

The Bank of England, which also holds a policy meeting on
Thursday, is expected to leave its key rate at 0.50 percent, as
concerns over domestic growth have trumped for now worries over
an uncomfortably high 5 percent inflation rate, analysts said.

Short-term European rates have been rising in recent weeks
on growing expectations that the ECB will increase rates, with
benchmark interbank rates hitting their highest in 21 months
this week .

On Thursday, the overnight indexed swap rate on three-month
euros , which gauges investor expectations of ECB
policy rate, was last quoted at 1.0250 percent, compared with
1.0230 percent on Wednesday.

The two-year rate on euro interest rate swaps ,
a barometer of private borrowing costs, touched 2.4090 percent
on Thursday, its highest since January 2009.

AUSSIE RATE FUTURES FALL

Elsewhere, robust job data in Australia pushed down local
rates futures, wiping out bets that the Reserve Bank of
Australia will pare rates at its May 4th policy meeting.

Now rates futures implied traders see a 50-50 chance of a
RBA rate hike at the end of the year.

Traders had priced in a remote chance that the RBA might
loosen its current target rate of 4.75 percent to cushion the
economy in case of a slowdown from the natural disasters in
Queensland and abroad.

So far, the Australian economy have been resilient, helped
by rising commodity prices, which have become headaches for
policymakers in many other parts of the world.

Australian employers added 37,8000 in March, higher than a
22,000 increase predicted by analysts, the government reported
on Thursday. For more, see [ID:nL3E7F602K]

“It’s certainly a stronger-than-expected report. We have
seen a sell-off at the front-end of the curve,” said David
Plank, fixed income strategist at Deustche Bank in Sydney.

On Thursday, 30-day Australian interbank futures
fell as much 6 ticks. The May contract shed 1.5 ticks at 95.255,
implying traders essentially shelved the view of a pending RBA
rate cut.

Aussie bill futures suffered steeper declines,
falling 3 to nine ticks with the June contract falling to its
lowest level in more than three weeks.

(Reporting by Richard Leong; Editing by Kim Coghill)

MONEY MARKETS-Euro rates edge up before expected ECB hike