* Use of ECB weekly funding twice more than expected
* Jump pinned on Spain woes, Greek banks regaining access
* Adds additional pressure on ECB to provide more support (Adds detail, background, quotes)
By Marc Jones
FRANKFURT, June 5 (Reuters) - Banks' use of ECB weekly funding more than doubled on Tuesday, as Spain's troubles left its institutions increasingly dependent on central bank support and four Greek banks returned to mainstream ECB operations following a two week ban.
The ECB's weekly offering of limit-free 7-day funding saw a total of 96 banks take 119.4 billion euros, the highest since the second of its two 3-year injections at the end of February and more than double the 51.2 billion euros taken a week ago.
Money market traders, who had expected only around 50 billion euros to be borrowed, put the surprise leap down to a combination of Spain's woes, recently blacklisted Greek banks coming back into ECB operations and lower recent uptake of three-month ECB funding.
"Part of it is certainly going to be Spanish banks considering what is happening there and after their margins were increased at (clear house) LCH," one London-based trader who requested anonymity said.
It was also the first chance for the four Greek banks who were kicked out of mainstream ECB operations last month to grab back cheap central bank funding. Their exclusion had triggered a 30 billion drop in ECB lending.
The jump in demand for the weekly funding is likely to alarm the ECB and add additional pressure for it to provide additional support to increasingly dysfunctional parts of the euro zone like Spain, when it meets on Wednesday.
It is expected to announce a lengthy extension to its arrangement where banks get all the funding they request, but many economists would like it to go further by offering more ultra-cheap 3-year loans and lowering its collateral standards to make it easier for banks to get ECB funding.
"We expect them (ECB) to extend unlimited liquidity at least until the end of the year and it is certainly possible that they do another LTRO," the London-based trader said.
The ECB's 1 trillion euro ($1.25 trillion) tidal wave of 3-year funding has already helped halve interbank lending rates this year. The benefits are not being felt in troubled corners of the euro zone, however, where most banks have lost all access to regular funding markets.
Euro zone bank-to-bank lending rates hit fresh two-year lows again shortly before the latest ECB injection, weighed down by the growing belief it will have to cut interest rates and keep its liquidity taps open to full to keep the euro together.
Extending a near-vertical six-month drop, three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending, inched down to 0.663 percent from 0.664 percent.
Six-month Euribor rates also hit new two-year lows, dropping to 0.940 percent from 0.941 percent. One-year rates fell to 1.223 percent from 1.224 percent.
Shorter-term rates were more mixed. One week rates remained at 0.318 percent while overnight rates fixed at 0.332 percent on Monday, down from 0.337 percent.
Dollar-priced three-month bank-to-bank Euribor lending rates , were also steady, staying at 0.970 percent. Overnight rates dropped to 0.313 percent from 0.317 percent.
The sharp fall in euro-priced interbank rates over the last half a year has brought benchmark euro-priced three-month rates to within touching distance of the euro-era low of 0.634 percent hit in early 2010.
The 0.25 percent the ECB offers banks for overnight deposits continues to act as a floor for money market rates as banks know they can get that level of interest no matter what. Some analysts expect the ECB to cut the deposit rate as well later this year.
High excess liquidity in the banking system - now at 769 billion euros according to Reuters calculations - has led to heavy use of the ECB's overnight deposit facility, where banks parked 781 billion euros overnight. In normal times the amounts are minimal.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.
* For a table of the latest Euribor fixings for terms of one week to one year, double click on
* For a table of the previous day's fixings of EONIA swap rates, which show market expectations for future overnight lending rates, double click on
* For graphs of historic Euribor and EONIA swap rates, right click on the links in angle brackets below, and select 'Related Graph'
1 year ($1 = 0.8003 euros) (Reporting by Frankfurt newsroom)