MONEY MARKETS-Europe interbank rates hover near 21-mth highs

* Traders gear up for steady diet of ECB rate hikes

* BOE seen holding rates until summer

* U.S. T-bill rates stabilise not far above zero

By Richard Leong

HONG KONG, April 7 (Reuters) – European money market
rates hovered near 21-month highs on Wednesday, with traders
positioned for a hawkish outcome of Thursday’s European Central
Bank rate review meeting expected to result in the region’s
first rate increase in two years.

Current money market rates are pricing in four ECB rate
increases this year and another four in 2012, according to
Deutsche Bank. ECB’s policy rate has been at 1
percent since July 2009. See

Further rate increases by the ECB may be deterred by fiscal
problems of Portugal and Spain and bank troubles in Ireland,
together with the conflict in Libya and the Middle East and
Japan’s struggle to contain the worst nuclear crisis in decades,
analysts said.

“Given the uncertainties around global growth, and
peripheral governments and banks it would be hard for the ECB to
deliver more than is priced in by the market while the (U.S.
Federal Reserve) remains on hold,” Deutsche Bank rate
strategists Mark Well and Francis Yared said in a note late on
Tuesday.

London interbank offered rates for three-month euros fixed
up at their highest since June 2009 at 1.2050 percent on Tuesday
, while equivalent Euribor — traditionally the main
gauge of unsecured interbank euro lending and a mix of interest
rate expectations and banks’ appetite for lending — hit 1.262
percent , the highest in 21 months.

Bank of England, which also reviews rates this week, is
expected to leave interest rates unchanged.

Weak domestic demand has overshadowed rising price pressure,
which caused British central bankers to reluctant to lift rates
until this summer, analysts said.

The U.K. rates market signaled traders are pricing in the
likelihood that the BOE will begin raising rates at its July
policy meeting, followed by another hike in October.

US FEE CHANGES

Across the Atlantic, the Federal Reserve will unlikely
tighten policy until early 2012 as top members of U.S. central
banks appear split on the timing to end its near-zero rate
policy and other extraordinary measures aimed to support the
economy sacked by the global financial crisis more than two
years ago.

At the moment, traders’ focus has shifted to the impact of a
fee change for banks, which has roiled the U.S. money market
since last Friday and led to a scramble for U.S. Treasury bills,
driving the one-month rate near zero and repurchase agreements
(repos) rates into negative territory. [ID:nN05149544].

U.S. Treasury bill rates steadied in Asian trade after an
increase in fees to insure liabilities drove them lower in the
previous session.

Any disruption in the $2.8 trillion repo market also hurts
overall trading activity because Wall Street and other firms
rely on it as a source to fund their trades.

In early Asian trading, one-month T-bills were last quoted
at 0.03 percent after falling near zero on Tuesday. The
one-month rate has fallen from 0.06 percent since last Thursday
and its recent peak of 0.155 percent in early February.

The three-day market squeeze has abated somewhat as foreign
banks and real money managers, which are not subject to the FDIC
levy, emerged to help to stabilise the repo market since late
Tuesday, analysts said.

(Reporting by Richard Leong; Editing by Ramya Venugopal)

MONEY MARKETS-Europe interbank rates hover near 21-mth highs