June 4, 2012 / 7:07 PM / 7 years ago

MONEY MARKETS-Funding cost rises on Europe worries

 * U.S. repo rates climb amid Greece, Spain concerns
 * Japan CP/CD rates edge up, Nordic rates flat
 * Eurodollar futures fall after Friday's rally
 * No dollar Libor fixings due to U.K. market holiday

 (Updates market)	
 By Richard Leong	
 NEW YORK, June 4 (Reuters) - The cost to borrow dollars rose
on Monday as investors charged higher premiums from banks and
bond dealers for short-term loans on contagion worries about
Spain's bank troubles and Greece's possible exit from the euro
zone.	
 Amid growing concern about Europe's debt crisis, top finance
officials and policy-makers leaders of the Group of Seven
industrialized nations will hold a conference call early
Tuesday, a Canadian government spokeswoman said. 	
 Adding to investor worries has been the expected Moody's
downgrades of global investment banks, which rely on repurchase
agreements and other short-term funding to finance their trades
and operations. Moody's downgrades of these banks are expected
by the end of June.	
 Friday's disappointing data from United States and China
reinforced the view the world's two biggest economies are being
dragging down from the fiscal woes hurting the euro zone.	
 "It definitely feels like last year. There are a lot of
event risks. Now you have China, and the U.S. is having problems
too," said Mike Lin, director of U.S. funding at TD Securities
in New York.	
 Over the weekend, Spanish Prime Minister Mariano Rajoy
called for the euro zone to set up a new fiscal authority to
manage the bloc's finances, while German Chancellor Angela
Merkel pressed for tighter fiscal integration among bloc
members.  	
 These remarks revealed some willingness among euro zone
leaders to work toward a long-term solution to improve a fiscal
framework for the region, but they offered little immediate
relief for cash-strapped Greece and Spain, analysts said.	
 Greece's political turmoil and worries about the Spanish
banking system needing a bailout have lifted the interest rates
on overnight repurchase agreements 15 basis points since
mid-April.	
 In the current climate of rock bottom, long-term investment
returns, rising short-term borrowing costs are cutting into the
profits of banks and bond dealers.	
 In the $1.6 trillion tri-party repo market, interest rates
on overnight loans was last quoted at 0.24 percent, unchanged
from late Friday. Overnight repos secured by U.S. government
debt traded as high as 0.26 percent earlier, traders said.	
 The overnight repo rate was roughly 5 basis points from the
year's high, according to Reuters data.	
 In unsecured lending, trading was light. Money market funds
and other investors showed appetite primarily in commercial
paper, certificates of deposits and other short-term debt with
maturities of a month or less, analysts said.	
 There has been little unsecured activities among French and
German banks in the second quarter since a modest revival in the
first three months of the year, analysts said.	
 Even investor demand for short-term debt from Japanese banks
might be waning. The three-month rates on top Japanese bank CP
and CDs were quoted at 0.35 percent on Monday, up from 0.34
percent late on Friday.	
 Many investors had scooped up Japanese bank
dollar-denominated paper on their perceived soundness and
safety, pushing down their rates.	
 Meanwhile, the three-month rates on dollar-denominated debt
from Canadian and Australian banks, which has also been favored
among risk-averse investors, was quoted at 0.20 to 0.22 percent,
flat from late last week, analysts said.	
 In the derivatives market, Eurodollar futures <0#ED:> fell
after some rallied to contract highs on Friday. The December
2012 Eurodollar contract fell 4.5 basis points to 99.095
after setting a contract high at 99.195 on Friday.	
 A fall in Eurodollar futures implied a rise in future costs
on interbank borrowing costs for three-month dollars.	
 There were no fixings London interbank offered rates on
sterling or dollar on Monday because of a market holiday in the
United Kingdom. 	
 On Friday, the three-month dollar Libor was
fixed at 0.46785 percent, rising for the first time since May
16.	
	
 (Reporting by Richard Leong; Editing by Padraic Cassidy)	
 
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