FRANKFURT, March 1 (Reuters) - Euro-priced bank-to-bank lending rates fell further below the European Central Bank's benchmark lending rate of 1 percent on Thursday after banks took 530 billion euros in the ECB's second 3-year loan handout, intensifying downward pressure on rates.
The second dose of cheap ECB money came after banks took 489 billion euros in the ECB's December tranche and is seen pushing bank-to-bank lending rates close to record lows last seen in March 2010, after banks receive the fesh funds on Thursday.
Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 0.967 percent from 0.983 percent, hitting the lowest level since October 2010 and recording their biggest daily drop since early January.
Rates in other maturities also dropped. Six-month rates fell to 1.267 percent from 1.279 percent, while 1onger-term 12-month rates dropped to 1.599 percent from 1.614 percent.
Shorter-term one-week rates, the most heavily influenced by excess liquidity which currently stands at a massive 484 billion euros according to Reuters calculations, ticked down to 0.347 percent from 0.357 percent, while overnight rates bucked the trend, inching up to 0.374 percent from 0.360 percent the previous day.
The 3-month lending rates have already dropped by roughly a third since the ECB announced plans to lend banks three-year money back in December, but are still well above the low of 0.634 percent they hit in early 2010.
But after Wednesday's second dose of ultra-long funds, which will be paid out on Thursday, the market now believes that rates may well get close to 2010-levels.
Euribor futures <0#FEI:> showed markets were anticipating rates to fall to 0.69 percent by June, with an additional drop to 0.67 percent by September.
The ECB's looser collateral rules helped banks - especially smaller ones - to get their hands on the cheap 3-year loans. In total, 800 banks took part, more than the 523 in December.
Thanks to the first cash injection in December, the euro zone managed to avoid a credit crunch as bank lending to companies stabilised in January, ECB data showed on Monday.
The cash is also having a positive impact on both the money market and euro zone bond markets, such as Spain and Italy.
Money market experts also report that some banks are now prepared to lend to some of their peers for as long as three months, a marked improvement on last month when even month-long loans were hard to come by in the open market.
Despite the apparent success of the measure, the ECB wants its second 3-year tender to be the last as central bank sources say they are worried banks will become too reliant on the funds.
Unlike in normal times, the enormous amounts of excess cash in the money market is keeping short-term market rates well below the ECB's main 1 percent policy rate. The bank's 0.25 percent overnight deposit rate is acting as a floor for market rates.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 1000 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 (Reporting Frankfurt newsroom)