Dec. 14 (Bloomberg) -- The biggest concerted effort by central banks in six years to restore confidence in global money markets is showing little sign of success.

The rates banks charge each other for three-month loans held at seven-year highs for a second day after policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed to ease the logjam in short-term credit markets. The cost of borrowing in euros stayed at 4.95 percent, the British Bankers' Association said today, up from last month's low of 4.57 percent and 3.68 percent a year ago.

``The market clearly doesn't believe central banks can do anything about this crisis,'' said Nathalie Fillet, senior interest-rate strategist at BNP Paribas SA in London. ``This is not going to be a magical solution to the problem.''

Policy makers are reacting to more than $70 billion of losses announced by financial institutions this year and estimates of about $300 billion more on securities linked to subprime mortgages, collateralized-debt obligations and structured investment vehicles, or SIVs. Citigroup Inc. said yesterday it will take over seven investment funds and assume $58 billion of debt to avoid forced asset sales.

Exacerbate Slowdown

The surge in money-market rates since August is fueling concern that the slump in bank lending will exacerbate a slowdown in global economic growth. Goldman Sachs Group Inc. in a report last month estimated losses related to record home foreclosures may be as high as $400 billion for financial companies. If accurate, banks, brokerages and hedge funds would need to cut lending by $2 trillion, triggering a ``substantial recession,'' the firm said.

In a sign of banks' increased perception that loans are becoming riskier, they are demanding 95 basis points more than the European Central Bank's key interest rate to lend three- month cash in euros, up from an average of 25 basis points in the first half of the year.

``The stresses and strains on the interbank and by extension the financial markets are liable to remain with us well into the first quarter of 2008,'' said Padhraic Garvey, ING Bank NV's head of investment-grade debt strategy in Amsterdam. ``Elevated fixings will remain an issue for the coming weeks and months beyond year-end.''

The three-month euro rate has risen from 3.73 percent on Jan. 2, when the ECB's main refinancing rate was 3.5 percent, and from 4.18 percent on July 2.

Stocks Decline

The cost of borrowing for three months in dollars fell 2 basis points to 4.97 percent, the BBA said today. That's 72 basis points higher than the Federal Reserve's target rate, up from an average of 11 basis points in the first half of the year and 16 basis points at the end of October.

The rate for pounds dropped 1 basis point to 6.5 percent, 100 basis points higher than the Bank of England's benchmark interest rate. The spread averaged 34 basis points more than the central bank's key interest in the first half and is up from 53 basis points at the end of October.

Stocks fell, with the Standard and Poor's 500 Index declining 0.4 percent. The so-called TED spread, the difference between the amount the government and banks charge for three- month loans, was at 2.1 percentage points, up from 0.35 percentage point at the start of the year, signaling increased reluctance among banks to lend.

Two-week money rates soared, reflecting the need for loans that will cover borrowers through to the end-of-year holiday period. The euro rate rose a record 81 basis points to 4.95 percent, the highest since April 2001, the BBA said. The two- week rate for dollars jumped 73 basis points to 5.11 percent.

Australian money-market rates climbed to the highest since 1996 earlier today and Japanese rates held near a 12-year high.

Subprime Fallout

Citigroup, the biggest U.S. bank by assets, follows HSBC Holdings Plc, Societe Generale SA and WestLB AG in bailing out so-called structured investment vehicles, or SIVs. The funds have cut their holdings by more than 25 percent since August to $298 billion, according to Moody Investors Service.

The fallout from the collapse of the U.S. subprime-mortgage market has been felt around the globe. In Florida, schools and towns pulled almost half their money last month from a $27 billion state-run fund after discovering it invested in defaulted and downgraded SIVs. Charlotte, North Carolina-based Bank of America, the second-largest U.S. bank, said last week it will liquidate a $12 billion enhanced cash fund after losses on holdings.

`Risk Grows Daily'

``It may be some time before the banks work through their capital constraints and get back to lending and risk-seeking again.'' William O'Donnell, head of U.S. government-bond strategy in Connecticut at UBS Securities LLC, wrote in a note to clients today. ``The recession risk grows daily.''

Derivatives based on money-market rates imply the spread between Fed base rates and three-month rates will remain at more than twice the historical average ``well into'' 2009, O'Donnell said.

Implied yields on Euribor futures contracts expiring this month through June 2009 rose today, with the December contract climbing 2 basis points to 4.93 percent. The implied yield on the March 2008 contract gained 3 basis points to 4.62 percent.

The Fed plans four auctions, including two this month that will add as much as $40 billion to the markets. The first U.S. auction will be $20 billion on Dec. 17. The second, on Dec. 20, will provide up to $20 billion. The central bank plans two more auctions, Jan. 14 and Jan. 28, with possible additional operations thereafter, the Fed said.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

Last Updated: December 14, 2007 11:50 EST