Oct. 6 (Bloomberg) -- Money-market rates climbed worldwide as banks hoarded cash on speculation the seizure in credit markets is deepening and may prompt more financial institutions to collapse.

The London interbank offered rate, or Libor, that banks charge each other for overnight dollar loans rose 37 basis points to 2.37 percent today, the British Bankers' Association said. The three-month rate stayed near the highest level since January. Asian rates increased and the Libor-OIS spread, a gauge of cash scarcity among banks, held near a record.

``The situation remains very tight and we probably need more action from central banks,'' said Cyril Beuzit, head of interest-rate strategy in London at BNP Paribas SA. ``There's a strong will from governments to get on top of the situation, but for the moment it hasn't worked. We're still left in a risk- averse environment.''

Interbank rates have jumped as banks store cash to meet anticipated funding needs after governments in Europe and the U.S. acted to prevent the collapse of six financial institutions in the past two weeks. The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, rose to 298 basis points today, before retreating to 291 basis points. It was at 129 basis points two weeks ago and 81 basis points a month ago.

BNP Paribas, France's biggest bank, agreed to take control of Fortis in Belgium and Luxembourg, completing a breakup of the lender after a government rescue failed. UniCredit SpA Chief Executive Officer Alessandro Profumo said Italy's biggest bank underestimated the severity of the global financial crisis, forcing him to cut profit forecasts and propose raising capital.

U.S. Bailout

The Federal Reserve will double its auctions of cash to banks to as much as $900 billion and is considering further steps, the central bank said today in a statement. The Fed will increase its auctions under the 28-day and 84-day Term Auction Facility operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each. The central bank will also begin paying interest on bank reserves.

President George W. Bush signed a $700 billion U.S. bailout bill into law last week to help stem the crisis, which has claimed financial companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc. The legislation enables the government to purchase tainted assets from institutions. European leaders meeting in Paris two days ago pledged to bail out their own nations' banks, while stopping short of a regional rescue effort.

Ted Spread

Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent, according to data compiled by Bloomberg that date back to January 1996. That's the highest since Sept. 30, the day after the U.S. House of Representatives rejected an earlier version of the bank-rescue plan. Companies sell commercial paper, which matures in nine months or less, to help pay for day-to-day expenses such as payroll and rent.

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened today to 393 basis points, the most since Bloomberg began compiling the data in 1984, before falling back to 390 after the Fed TAF statement. Writedowns and losses worldwide tied to the U.S. mortgage market have reached $585 billion since the start of last year, according to data compiled by Bloomberg.

Conditions `Very Tight'

Banks borrowed the most since February 2001 from the European Central Bank at its emergency rate as the credit crunch worsened. Financial institutions borrowed 24.6 billion euros ($33.4 billion) for overnight on Oct. 3 at the central bank's marginal lending rate of 5.25 percent, which is one percentage point above its benchmark rate. At the same time, banks deposited 38.9 billion euros with the ECB, the Frankfurt-based central bank said in a statement today. The deposit rate is 3.25 percent.

``Money-market conditions will continue to be very tight and this will not improve in the short term,'' said Dwyfor Evans, a foreign-exchange strategist at State Street Global Markets in Hong Kong. ``There's an absence of trust.''

The increase in the overnight dollar Libor was the first in four days. The three-month rate was within 4 basis points of the highest since Jan. 10.

The euro interbank offered rate, or Euribor, for three- month euro loans advanced 1 basis point to 5.35 percent today, a seventh straight all-time high, European Banking Federation data showed. The Euribor for one-month loans in euros advanced 2 basis points to 5.15 percent today, reaching a record for a fifth day, according to the EBF.

Asia Rates

Government bonds around the world climbed as stocks slid, driving investors to the safest assets. U.S. Treasuries rose for a fourth day, sending two-year notes to their longest winning streak in six weeks, and gains for German two-year notes drove yields to their lowest levels since March. Japanese 10-year bonds advanced for a second day.

The MSCI World Index, a global equity benchmark, dropped for a third consecutive day, falling 6.7 percent to its lowest level since November 2004.

Hong Kong's three-month interbank offered rate, or Hibor, increased 4 basis points to 3.85 percent, the highest since Dec. 10. The corresponding rate in Tokyo held at a nine-month high.

Philippine money-market rates rose for a third day. The one-month interbank rate climbed to 5.125 percent, according to the Bankers Association of the Philippines.

``Philippine banks are liquid but they still want to borrow for safety so they'd have enough in case the crisis continues,'' said Marcelo Ayes, senior vice president for Treasury at Rizal Commercial Banking Corp. in Manila.

Borrowing costs between banks in Singapore fell today, with the benchmark three-month rate for dollar loans easing more than 3 basis points to 4.23 percent, according to the Association of Banks in Singapore.

``Euro and dollar funding has shot up due to the bank failures in those places,'' said Irene Cheung, a currency strategist at ABN Amro Bank NV in Singapore. ``Asia's situation is not so scary.''

The Bank of Japan added 1 trillion yen ($9.7 billion) to the financial system. Australia is closed for a public holiday.

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

Last Updated: October 6, 2008 12:48 EDT