Oct. 22 (Bloomberg) -- Financing costs in Asia extended the past week's declines after money market rates fell yesterday in Europe and the U.S. Federal Reserve agreed to provide as much as $540 billion in loans to relieve pressure on money-market funds.

Hong Kong's three-month interbank lending rate, or Hibor, fell for a fourth day, tumbling 0.21 percentage point to 3.14 percent, the lowest since Sept. 22. Singapore's three-month rate interbank for U.S. dollar loans dropped to 3.65 percent, the least in four weeks.

Governments worldwide are making trillions of dollars available to bolster banks as money markets seized up after Lehman Brothers Holdings Inc. went bankrupt on Sept. 15. The French government will inject 10.5 billion euros ($14 billion) into six banks including BNP Paribas SA and Societe Generale SA.

``It's a freeing up of the peak fears that banks have had lending to each other,'' said Damien McColough, head of fixed- income research at Westpac Banking Corp. in Sydney. ``We've removed the real fueling of the cash market that the RBA had to do through the last month or so and we're back to levels that a year ago would have seemed very high.''

Australian funding costs were little changed after banks' deposits at the central bank dropped to A$7.83 billion ($5.3 billion) yesterday, down A$3.4 billion from Oct. 20. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate, a measure of funding availability, rose 1 basis point to 62.5 points at 2:22 p.m. in Sydney. A basis point is 0.01 percentage point.

The Reserve Bank of Australia pumped A$2.46 billion in the financial system today, after estimating there would be a deficit of A$4 billion, according to the central bank's Web site.

Libor Decline

The three-month London interbank offered rate for U.S. dollar loans, or Libor, slid 23 basis points to 3.83 percent yesterday, the lowest since Sept. 26.

``The extraordinary measures seen in recent weeks -- including huge provision of liquidity, coordinated interest rate cuts, governments injecting capital into banks and providing blanket deposit guarantees -- have served to ease credit market pressures,'' Fat Prophets Australasia, a research provider, said today in a note to clients.

Australian Treasurer Wayne Swan said credit is ``starting to flow again,'' speaking on Australian Broadcasting Corp. radio.

Interbank rates have tumbled in the past week after policy makers in Europe and Japan offered lenders unlimited dollar funding. The European Central Bank and the Bank of England yesterday made available as much U.S. currency as required. The ECB allotted $101.93 billion of 28-day cash at a fixed rate of 2.11 percent, while U.K. policy makers loaned $26 billion.

Fed Buying Paper

The Fed invoked emergency authority to buy assets from money-market mutual funds that are having difficulty meeting redemptions from their investors, the third initiative since Lehman's collapse. The central bank will lend to a series of special units that will buy certificates of deposit, bank notes and commercial paper with remaining maturity of 90 days or less.

The difference between what banks and the U.S. Treasury pay to borrow for three months, the so-called TED spread, was 277 basis points yesterday, down from 298 basis points on Oct. 20.

Money markets remain tight compared with historical averages, helping tip the world toward recession and forcing governments including Iceland and Pakistan to hold talks with the International Monetary Fund on rescue packages.

``The IMF and World Bank warned that the credit crisis would impact developing economies and harshly,'' Adam Carr, senior economist at ICAP Australia Ltd. in Sydney, wrote in a note to clients.

The financial crisis will halve real growth in credit this year as financial firms reduce leverage, investors' appetite for risk declines and the worldwide economy slows, Fitch Ratings said in a report yesterday.

Libor, Spreads

Three-month dollar Libor is still 233 basis points more than the Fed's target rate for overnight loans of 1.5 percent, up from 120 basis points about a month ago. At the start of the year, the spread was 43 basis points. A basis point is 0.01 percentage point.

The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, was at 274 basis points, down from 290 basis points yesterday and 364 basis points on Oct. 10.

Overnight indexed swaps are over-the-counter traded derivatives in which one party agrees to pay a fixed rate in exchange for the average of a floating central-bank rate during the life of the swap. For dollar swaps, the floating rate is the daily effective federal funds rate.

Libor is used to determine rates on $360 trillion of financial products worldwide, from mortgages to company loans and derivatives.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Last Updated: October 21, 2008 23:40 EDT