Bankers ask "who's next?"

By Mike Dolan and Kirsten Donovan

LONDON (Reuters) - Financial trading and interbank lending almost ground to a halt on Monday as banks grew fearful of dealing with each other following Friday's near collapse of U.S. investment firm Bear Stearns, prompting talk of another round of coordinated central bank aid.

As banking stock prices and the U.S. dollar plummeted, banks' access to unsecured borrowing from other banks fell to a relative trickle and dealers said the over-the-counter market had become highly discriminatory, depending on the bank name.

The seizure in money markets was reflected in a dramatic 80 basis point surge in overnight dollar London interbank offered rates, the biggest daily increase since the attacks of September 11, 2001.

"Banks and institutions are just scrambling for cash, any cash they can get their hands on," said a money market trader at a European bank.

"And it's seen as a U.S. market problem for the moment, or a dollar problem anyway," he said, noting the relatively modest increase in overnight euro and sterling Libor.

Published dealing rates were unreliable and analysts said any bank that had not already secured funding further than a week or so would struggle to raise cash at all.

"Bear's near-collapse and takeover accelerates the liquidity crunch and the money market crisis," Dresdner Kleinwort analyst Willem Sels told clients in a note.

"Banks' risk aversion and sensitivity to counterparty risk should rise even further, leading to more pressure on hedge funds. Money markets are having a brutal wake-up call."