Key Euribor rates hit near two-year highs

The illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in Frankfurt April 5, 2011.

FRANKFURT (Reuters) - Key euro-priced bank-to-bank lending rates rose to near a two-year high on Wednesday, pushed up by expectations that the European Central Bank will continue to hike euro zone interest rates this year.

The ECB raised euro zone interest rates by a quarter of a percent to 1.25 percent last Thursday, ending almost two years of record low interest rates.

Two-thirds of the 62 economists polled by Reuters after the hike, which until last month would have shocked experts, expect another rate rise by July at the latest. <ECB/INT>

Expectations of policy tightening and a bank-led reduction in excess money market liquidity have been the main drivers behind a 25 percent plus rise in bank-to-bank lending rates since the start of the year.

The three-month Euribor rate -- traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending -- rose to 1.327 percent from 1.320 percent on Tuesday.

Six-month rates rose to 1.626 percent from 1.621 percent, longer-term 12-month rates rose to 2.099 percent from 2.093 percent, while shorter-term one-week rates jumped to 1.145 percent from 1.130 percent.

EONIA overnight interest rates fixed at 0.802 percent on Tuesday up from 0.531 percent as a new ECB's reserves period kicked in.

Excess liquidity in the money market was currently around 11 billion euros at the end of the ECB's previous reserves period on Tuesday, according to Reuters calculations. Banks edged up their intake of ECB funding by around 10 billion euros on Tuesday, taking 83.7 billion in 1-month funding and 94 billion in weekly funding.

In March the ECB left all its liquidity operations at full allotment until July, putting its exit strategy from stimulus measures on hold for the second quarter running.

It is already back to its pre-crisis range of funding operations, however. Three-month loans are again the longest maturity on offer and banks have now paid back all the six-month and 12-month loans the ECB injected during the turmoil.

Earlier this month it threw a lifeline to Irish banks after stress tests revealed a 24 billion euro hole in the sector's capital.

It said it would no longer insist on minimum credit ratings for Irish sovereign debt, or for debt guaranteed by the Irish government, when accepting it as collateral in money market operations.

Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 10 a.m. British time.

(Reporting by Frankfurt newsroom)