MONEY MARKETS-Futures point to higher yields

* Technical analysts watching for 98.35 on Dec 2011 Euribor

* March 2012 futures imply LIBOR of 1 pct, a 70 bps premium

* U.S. Treasury selloff, strong data pushing futures lower

* PIMCO raises 2011 growth forecasts

(Adds quote, Libor, Euribor info, changes byline, dateline)

By Emily Flitter and Saikat Chatterjee

LONDON/HONG KONG, Dec 10 (BestGrowthStock) – Eurodollar, euribor and
sterling futures are all rising, heralding a rise in short-term
interest rates and a possible increase in banks’ borrowing costs
by the end of next year, analysts said on Friday.

Nicole Elliott, a technical strategist at Mizuho in London,
said she was watching for a price level of 98.35 on the December
2011 Euribor contract, which would represent a “neckline” on a
“head-and-shoulders” formation that technical analysts describe
as a predictable pattern of rate spikes and dips.

“We have some rather ugly chart patterns,” Elliott said.
“All three money market futures contracts for December delivery
are agreeing with each other that we may have reached a high in
the futures contracts, a low in yields, and the next move is to
higher yields.”

Elliott demurred from offering macro-oriented explanations
for the technical indicators. But she noted the recent rise in
U.S. Treasury yields and said it was due to “a combination of a
very thin market and people questioning the value of all
sovereign debt.”

March 2012 eurodollar futures are set for their biggest
weekly decline in a month, on expectations that U.S. interest
rates could start to rise at the end of next year.

A sharp selloff in the U.S. Treasury market this week also
triggered some stop losses in those contracts in a thinning
market and at a time when banks are increasingly looking to wind
down their trading activity before the year end, traders said.

On Monday, U.S. President Barack Obama unveiled a surprise
cut in payroll taxes for 2011 which may give a further boost to
growth at a time when recent data such as retail sales have been
strong, indicating the world’s biggest economy may have turned a
corner. [ID:nN07277043]

Eurodollar futures contracts expiring in March 2012 fell 14
pips this week to 99.005, their biggest weekly fall since
mid-November, when concerns over Ireland’s debt crisis flared.

The fall indicated that implied LIBOR would be at 1 percent
by then, a 70 basis points premium to current LIBOR rates.

Both open interest and volumes traded on the March 2012
contract were near record peaks, indicating hectic trading
activity.

In comparison, the movements on the near-month contracts
have been relatively small, with volumes on the December 2010
eurodollar futures contract expiring next week at a fraction as
traders had largely squared their books.

On a weekly basis, contracts out to June 2011 were set to
end flat with losses rising thereafter.

Pacific Investment Management Co, which runs the world’s
biggest bond fund, raised its growth forecast for the United
States next year to 3-3.5 percent in the fourth quarter of 2011
from the same period this year, compared with a prior estimate
of 2-2.5 percent. [ID:nN09274613].

March 2011 eurodollar futures and June contracts were
indicating a LIBOR of 0.42 percent and 0.55 percent
respectively.

Three-month dollar Libor (USD3MFSR=: ) fixed lower at 0.30156
on Friday, breaking a three-day stretch on hold at 0.30219.

The three-month euro Libor (EUR3MFSR: ) fell to 0.95688 from
0.96313 on Thursday.

(Editing by John Stonestreet)

MONEY MARKETS-Futures point to higher yields