May 20 (Bloomberg) -- Lending confidence at banks rose to the highest level in more than nine months, signaling the global credit crunch may be easing.

The so-called TED spread, the difference between what the U.S. government and banks pay to borrow in dollars for three months, dropped to 77.7 basis points today, the lowest since August. It was at 79 basis points as of 11:53 a.m. in New York. The spread averaged 39 basis points in the seven months through July last year, before the global credit squeeze began.

The shortage in lending has eased since the Federal Reserve provided $29 billion of financing to secure Bear Stearns Cos.' takeover by JPMorgan Chase & Co. on March 17. The cost of borrowing soared last year as banks hoarded cash amid the collapse of the U.S. subprime-mortgage market. The Fed has cut borrowing costs seven times since September and offered new loans to banks in to revive lending and stave off a recession.

``The worst of the fears about the liquidity crisis appear to be alleviating,'' said Peter Jolly, head of markets research in Sydney at NabCapital, the investment-banking arm of National Australia Bank Ltd. ``Liquidity is becoming more available ever since the bold moves by the Fed.''

The TED spread, the difference in the yield on three-month U.S. Treasury bills and the three-month London interbank offered rate, or Libor, for dollars, was as wide as 2.03 percentage points in March, rising from last year's Feb. 22 low of 18 basis points, as credit-market losses deepened. The world's financial companies have reported about $329 billion in writedowns and losses since the start of 2007.

Bischoff, Soros

Banks may be emerging from their trough, Citigroup Inc. Chairman Win Bischoff said today at the London Gateway 2008 conference. Investor George Soros said in an interview with BBC Radio 4 that the ``acute phase'' of the global credit crisis is over.

Libor for overnight loans in dollars dropped 4 basis points to 2.11 percent today, the lowest level since Dec. 9, 2004, the British Bankers' Association said. The three-month rate declined 2 basis points to 2.66 percent, the lowest in almost a month.

``Things are definitely looking better but we're not out of the woods yet,'' said Torsten Slok, an economist at Deutsche Bank AG in New York. ``People are still nervous and there's a lot of stress in the money markets.''

OIS Spread

The difference between the rate banks charge for three- month dollar loans relative to the overnight indexed swap rate, the so-called Libor-OIS spread, indicates lenders are continuing to hoard cash. The spread was 67 basis points today, compared with an average 11 basis points in the 12 months to July 2007. It widened to 100 basis points on Dec. 4.

The spread between the three-month Libor rate and the Fed's target rate for overnight loans between banks was at 66 basis points today, compared with an average 12 basis points in the year through July 2007.

The credit crisis will extend into and even beyond 2009 as banks write off more than $170 billion of additional reserves by the end of next year, analysts at Oppenheimer & Co. led by Meredith Whitney wrote in a research note today. The U.S. housing slump still poses ``serious risks'' to global financial stability, the International Monetary Fund's Deputy Managing Director John Lipsky said.

The cost of protecting corporate bonds from default rose the most in almost two weeks today on concern that rising raw materials costs are damping consumer spending and eroding company earnings.

`Things Improving'

U.S. banks led declines in stocks today, dragging down the Standard & Poor's 500 Index from a four-month high, as analysts forecast more credit losses. The index has gained more than 9 percent since the TED spread reached its high for the year on March 19, as some investors bet the worst of the crisis is over.

``Spreads remain at elevated levels but they are not increasing anymore,'' said Christoph Rieger, a fixed-income strategist in Frankfurt at Dresdner Kleinwort, the investment bank owned by Allianz SE, Europe's biggest insurer. ``Slowly and gradually things are improving.''

The credit crunch started in July when two Bear Stearns hedge funds that invested in securities tied to U.S. subprime mortgages collapsed. The company, once the biggest underwriter of U.S. mortgage bonds, had to bail out the funds and take possession of many of the instruments.

Two-year Treasury note yields rose to the highest since January last week as signs the credit crisis is nearing an end gave investors the confidence to buy higher-yielding assets. Pacific Investment Management Co., which manages the world's largest bond fund, last week advised investors to switch to company debt, which it said may benefit as policy makers seek to boost liquidity.

``We've seen some degree of easing in the dollar rates in the past week or so,'' said Barry Moran, a money-market trader at the Bank of Ireland in Dublin. ``The Fed has introduced a lot of liquidity-adding measures and they seem to be working over time. Hopefully this is the start of a trend.''

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Aaron Pan in Hong Kong at apan8@bloomberg.net

Last Updated: May 20, 2008 12:08 EDT