Oct. 14 (Bloomberg) -- Money-market rates in London fell after the U.S. joined the U.K., Germany and France in offering to buy stakes in banks to restore confidence in the global financial system.

The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans slid 12 basis points to 4.64 percent today, the biggest drop since March 17, according to the British Bankers' Association. It was at 4.82 percent on Oct. 10, the highest level since December. The three- month euro rate fell 7 basis points to 5.23 percent, the largest decline since Dec. 28.

The U.S. will inject $250 billion into banks through preferred stock purchases, with nine already agreeing to participate in the program, Treasury Secretary Henry Paulson said today. The spending is part of the $700 billion in government support approved by Congress on Oct. 3. The measures follow similar moves by Europe to unlock credit markets.

``What everyone was crying out for was a coordinated central policy response, and that's what we got,'' said Patrick Bennett, a currency strategist with Societe Generale SA in Hong Kong. ``What we had was a lack of confidence in the money markets. I think it's starting to thaw.''

While the three-month dollar rate declined, it is still 314 basis points more than the Federal Reserve's target of 1.5 percent. The difference was a record 332 basis points on Oct. 10 and 82 basis points on Sept. 15, the day Lehman Brothers Holdings Inc. collapsed.

Concerted Action

The U.S. will invest about $125 billion in nine banks as part of the rescue, including Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and State Street Corp. in exchange for preferred shares, people familiar with the plan said earlier

European and U.S. governments may spend as much as $3 trillion to unfreeze credit markets, meet demand for dollars and shore up banks. The European Central Bank today lent banks 310.4 billion euros ($427 billion) for seven days. That's the most since December 2007, when it added an unprecedented 349 billion euros to the banking system. The ECB yesterday agreed with counterparts in the U.S., Canada, Switzerland and the U.K. to provide unlimited dollar funds to financial institutions.

The MSCI World Index of stocks rose 2.3 percent, after gaining 9.5 percent yesterday. Stock markets worldwide last week suffered their worst rout on concern more financial institutions would collapse because of the freeze in credit markets.

Commercial Paper

Yields on the highest-rated U.S. commercial paper due in one day fell 11 basis points to 1.72 percent today, the lowest level in more than two weeks, according to data compiled by Bloomberg. Dealer-placed offer rates on most longer-term paper rose, with the average yield on 30-year debt increasing 37 basis points to 4.09 percent.

The dollar Libor-OIS spread, a gauge of demand for cash, narrowed 13 basis points to 341 basis points. It was at 105 basis points on Sept. 15 and 24 basis points on Jan. 24. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed 29 basis points to 428 basis points, down from 464 basis points on Oct. 10, the most since Bloomberg began tracking the data in 1984.

The Bush administration will also buy preferred shares in Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co. and Bank of New York Mellon Corp., said the people familiar with the plan. Countries including France, Germany, Spain and Austria yesterday committed 1.1 trillion euros to guarantee bank loans and take stakes in banks equal to 3 percent of their economies.

Asia Rates

Money market rates fell across Asia after Japan and Australia pumped $9.1 billion into the financial system. Singapore's three- month dollar loan rate dropped for the first time in a week, falling 13 basis points to 4.66 percent. Japan's borrowing costs eased to the lowest this month.

In a sign that credit-markets remain strained, banks deposited a record amount of cash with the ECB overnight, lodging 182.8 billion euros at 3.25 percent, up from 154.7 billion euros on Oct. 10. They also borrowed 17.5 billion euros from the central bank at the emergency overnight marginal rate of 4.25 percent, up from 16.6 billion euros.

Libor, set by 16 banks in a survey conducted by the BBA each day in London, determines rates on $360 trillion of financial products worldwide, from home loans to derivatives. Member banks provide estimates on how much it would cost to borrow in 10 currencies for terms between one day and a year.

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.

Last Updated: October 14, 2008 11:32 EDT