Nov. 13 (Bloomberg) -- The cost of borrowing dollars for three months in London rose, snapping a 23-day decline, signaling policy makers have yet to succeed in thawing the global credit freeze.

The London interbank offered rate, or Libor, that banks say they charge each other for such loans increased almost 2 basis points to 2.15 percent today, according to British Bankers' Association data. The last time the rate climbed was Oct. 10. The overnight rate also rose 2 basis points, to 0.40 percent, or 60 basis points below the Federal Reserve's target rate.

Declines in money-market rates may be petering out amid signs the financial crisis will persist and is spreading to the global economy. U.S. Treasury Secretary Henry Paulson said yesterday he plans to use the second half of the $700 billion financial-rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``The market is still in a limbo, and Paulson's statement yesterday doesn't help,'' said Robin Marshall, head of international fixed income in London at NCL Smith & Williamson, which oversees about $20 billion in assets. ``It's true U.S. policy makers have done a lot to address important issues, but given the magnitude of the problem, the $700 billion package is looking too small rather than too big.''

The global hedge-fund industry lost $100 billion of assets in October, according to an estimate from Eurekahedge Pte, as firms including Sparx Group Co. and Man Group Plc were hammered by investor redemptions.

`Skittish' Market

Money-market derivatives indicated traders are betting the three-month dollar rate will rise over the next three months, before falling. The Libor forwards contract due February is being quoted at 2.30 percent today and the November 2009 contract at 2.03 percent, according to BNP Paribas SA.

``Whilst Hank Paulson's rethink on buying bad mortgages may be right thinking, it's the wrong time,'' said Felix Riley, head of binaries at the ChoiceOdds unit of MF Global in London. ``Paulson is making the market skittish.''

Money rates declined from last month's peak as central banks cut borrowing costs and provided unlimited dollar funding and governments offered bailouts and guarantees to financial institutions. Credit markets froze after Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15, shattering lenders' confidence they would be repaid.

The three-month Libor for euros fell about 4 basis points to 4.23 percent today, the lowest level since July 23, 2007.

ECB Deposit Facility

Banks lodged 103.3 billion euros ($129 billion) in the European Central Bank's deposit facility yesterday, the lowest amount since Oct. 9 and down from 142.1 billion euros the previous day. It was the fourth straight drop. Banks borrowed 4 billion euros at the marginal lending rate of 3.75 percent.

In the U.S., interest rates on U.S. commercial paper rose for a second day, according to data compiled by Bloomberg. Rates on the highest-ranked 30-day CP climbed 5 basis points to 1.04 percent, or 4 basis point more than the Fed's target. One basis point is 0.01 percentage point.

Bank of England Governor Mervyn King said yesterday the central bank will reduce interest rates as needed to prevent a recession from fueling deflation. Bank of Canada Senior Deputy Governor Paul Jenkins said policy makers will probably cut rates again amid ``major shocks.''

Libor, the benchmark for $360 trillion of financial products worldwide, is set by a panel of banks in a daily survey by the British Bankers' Association before noon in London.

Libor-OIS Spread

The Libor-OIS spread, which former Fed Chairman Alan Greenspan said in June should serve as a measure for determining when markets have returned to normal, was at 161 basis points today. The spread measures the difference between the rate banks charge for three-month dollar loans relative to the overnight indexed swap rate.

It compares with 87 basis points on the last trading day before Lehman declared bankruptcy, and an average of 11 basis points in the five years before the onset of the financial crisis.

Singapore's three-month interbank rate for U.S. dollar loans, or Sibor, fell about 4 basis points to 2.12 percent today. The rate Australian banks charge each other for three- month loans dropped more than 8 basis points to 4.75 percent, the 10th straight drop.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

Last Updated: November 13, 2008 12:09 EST