Aug. 14 (Bloomberg) -- The European Central Bank pared the amount of money lent to banks in its fourth day of emergency money-market financing, saying that euro interest rates are ``close to normal.''

``The ECB is still offering the opportunity to cover any remaining liquidity needs,'' the Frankfurt-based ECB said in a statement. The bank loaned 7.7 billion euros ($10.5 billion), down from 47.7 billion euros yesterday, which banks pay back today.

The overnight rate at which banks lend cash to each other dropped to 4.03 percent after rising to as high as 4.13 percent before the ECB announced its intention to offer extra cash today. The rate spiked to a six-year high of 4.62 percent on Aug. 9, prompting the bank to add an unprecedented 94.8 billion euros. It has been reducing the amount since then.

Other central banks refrained from pumping extra cash into the money market today, resuming regular refinancing operations. The Bank of Japan drained a total of 1.6 trillion yen ($13.6 billion) from the financial system after adding money for the past two days.

Still, it may be too early for an all-clear. ``Overnight rates declined, but one-month to three-month rates still reflect tight market conditions,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``It's crucial that the markets regain more confidence again as the ECB reacts proactively.''

The three-month rate jumped as high as 4.47 percent today compared with 4.25 percent on Aug 1.

BNP Paribas, IKB

Credit-market turmoil worsened last week after European banks acknowledged their vulnerability to rising defaults on American subprime mortgages, aimed at borrowers with a poor or sketchy credit history.

BNP Paribas SA, France's biggest bank, was forced to halt withdrawals from three of its investment funds. Just the week before, BNP Chief Executive Officer Baudouin Prot said the bank wasn't at risk.

Germany's government had to organize a rescue package for IKB Deutsche Industriebank AG as the Dusseldorf-based bank unveiled potential losses of as much as 3.5 billion euros. NIBC Bank NV in the Netherlands posted losses from U.S. credit investments.

American Home Mortgage

American Home Mortgage Investment Corp. last week became the U.S.'s second-biggest home lender to file for bankruptcy. Countrywide Financial Corp., the biggest U.S. mortgage lender, said it faces ``unprecedented disruptions'' that may hurt profit.

The shakeout in global debt markets may also cut earnings at Rams Home Loans Group Ltd., an Australian mortgage lender that sold stock last month. Its shares slumped 22 percent, making Rams the nation's worst initial public offering this year.

Demand for mortgages from borrowers with poor credit histories weakened in the past three months as U.S. banks tightened lending standards for home loans, according to a Federal Reserve survey published yesterday. The survey showed weaker consumer loan demand and indicated that lenders and borrowers are growing more wary as home prices moderate.

The International Monetary Fund said last week that ``prompt action'' by central banks to add cash to the banking system should help avert a crisis in credit markets.

``We continue to believe that the systemic consequences of the re-assessment of credit risk that is taking place will be manageable,'' the IMF said.

Growth Outlook

The IMF said on July 25 that growth in Europe, Japan and emerging markets including China and India is proving stronger than expected, compensating for a weaker U.S. economy. The fund predicted the global economy will expand 5.2 percent in 2007 and 2008, more than the 4.9 percent it forecast in April.

Still, euro-region economic growth slowed more than economists forecast in the second quarter, a report today showed.

The economy of the 13 nations that share the euro expanded 0.3 percent from the first quarter, when it grew 0.7 percent, the European Union's statistics office in Luxembourg said. That's the slowest pace since the fourth quarter 2004.

To contact the reporter on this story: Christian Vits in Frankfurt cvits@bloomberg.net

Last Updated: August 14, 2007 07:13 EDT