Italy launches one-day liquidity tenders

MILAN (Reuters) - Italy's Treasury on Wednesday provided 5.38 billion euros (4.6 billion pounds) in one day-funds to cash-starved Italian and international lenders, through special liquidity tenders it launched at a time of severe funding stress for banks.

The move, which analysts said was planned for some time and brings Italy in line with practices seen in other European countries, provides an alternative overnight funding tool to banks which are wrestling with crippled interbank lending.

Italy's initiative came as top central banks around the world announced they would take steps to prevent a credit crunch among Europe's banks struggling the euro zone's debt crisis.

Total bids at the two auctions held by the Treasury on Wednesday amounted to 14.85 billion euros.

The one-day funds were assigned at an average 2 percent rate at the morning tender and at a lower 0.99 percent rate at the afternoon one.

These rates are higher than market levels of 0.60/0.75 percent, showing banks were willing to pay more to secure the funds.

The Treasury changed the assignment mechanism after the first tender injected only 1.98 billion euros, less than half of the amount on offer, despite bids for 11.5 billion euros.

The second tender was able to meet in full requests totalling 3.4 billion euros -- roughly one billion euros less than the Treasury had intended to offer.

Five banks bid for funds both at the morning and at the afternoon tender. For details click on and.

The Treasury had said earlier on Wednesday it was launching the new system of auctions to manage liquidity on the money market with immediate effect, using its account at the Bank of Italy.

Treasury sources told Reuters funds on the account totalled 36 billion euros at the end of October.

One Treasury source said longer-term operations could be possible in the future but bidders would be asked to provide collateral against the loans.

The facility used by the Treasury to provide liquidity has been in place since 2007 but had been used in the past only to mop up extra funds.

Regulations introduced through decrees over the last few days have enable the Treasury to use the facility in this new way.

The Treasury said the tenders were part of a reform of its liquidity management system already envisaged in a 2009 law.

"We know the Treasury had been planning this, they had mentioned it a few months back, but I think the process must have received an acceleration recently given the situation," an Italian bond analyst said.

A London-based banking analyst said that in other European countries governments' cash-balances are managed in a similar way, involving the banking system.

"It was about time they did it too," he said, asking not to be named.

A list of eligible banks, which the Treasury said would be updated with more names in the coming days following an ongoing selection process, comprises 14 lenders including Barclays Bank, Credit Agricole, Credit Suisse, Intesa Sanpaolo, Morgan Stanley, Societe Generale and UniCredit.

To see the full list please double-click on.

A document on the Treasury's website shows banks that are specialist primary dealers in Italy's debt are allowed to take part in the auctions together with others selected by the Treasury, on the basis of various criteria including their creditworthiness.

Twenty banks currently act as specialists on Italy's debt. For a list double-click on.

"The thought has crossed my mind that in this way the Treasury is offering extra funds to its primary dealers," the banking analyst said.

Specialist primary dealers have underwriting obligations at Italian auctions, which have become more onerous at a time of rapidly falling prices for Italian bonds.

(Additional reporting by Valentina Za and Gavin Jones; Editing by Ron Askew)