January 31, 2019 / 2:36 PM / 3 months ago

MONEY MARKETS-Dollar LIBOR posts biggest monthly fall since 2010

* Daily LIBOR rises first time in seven sessions

* U.S. Fed signals no hurry to raise interest rates

* U.S. central bank prepares to adjust balance sheet normalization

Jan 31 (Reuters) - A key barometer of interbank interest rates recorded its biggest monthly decline in January on Thursday after the U.S. Federal Reserve signaled it was not rushing to increase borrowing costs, prompted by muted inflation and risks to economic growth.

The London interbank offered rate (LIBOR) to borrow dollars for three months fell 7 basis points in January, marking its steepest monthly decrease since a near 16-basis point drop in August 2010.

LIBOR is the benchmark rate for $200 trillion worth of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.

On the day, three-month dollar LIBOR edged up to 2.73750 percent from 2.73625 percent on Wednesday, the lowest level since Dec. 4. It was the first increase in seven sessions.

Back in December, LIBOR reached its highest in more than decade, propelled by rate increases by the Fed, rising U.S. government borrowing and a shrinking Fed balance sheet.

Traders had expected short-term U.S. borrowing costs to decline on worries about slowing economic growth, trade tensions between China and the United States and stock market volatility.

On Wednesday, the Fed said it would be “patient” before ratcheting key lending rates higher. Fed Chairman Jerome Powell said the case for rate increases had “weakened” in recent weeks.

Last month, policymakers decided to raise short-term rates by a quarter point to 2.25 percent to 2.50 percent, marking the fourth rate increase in 2018.

The U.S. central bank on Wednesday also signaled it was prepared to adjust the normalization of its balance sheet.

Reporting by Richard Leong; editing by Jonathan Oatis

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