Nov. 4 (Bloomberg) -- The cost of borrowing dollars for one month in London fell to the lowest level in almost four years as central-bank cash injections and interest-rate cuts worldwide showed signs of thawing the freeze in lending.

The London interbank offered rate, or Libor, that banks charge each other for such loans slid 18 basis points to 2.18 percent today, the lowest level since November 2004, and the 17th straight decline, according to British Bankers' Association data. The three-month rate dropped 15 basis points to 2.71 percent, the lowest level since June 9, according to BBA figures.

Interbank rates have tumbled worldwide as central banks slashed interest rates and governments pledged as much as $3 trillion of emergency funds to kickstart lending. Australia's central bank cut its benchmark rate by a bigger-than-expected 75 basis points to 5.25 percent today, joining policy makers in China, Hong Kong, India, Japan and the U.S. in reducing borrowing costs in the past week.

``The central bank measures have helped ease the severe tensions we were seeing,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``There's pretty brisk activity in the dollar space out to one month.''

The European Central Bank and Bank of England will cut their key rates by 50 basis points in two days, according to Bloomberg surveys. Three-month dollar Libor also slid for a 17th consecutive day today, according to the BBA. The rate was at 4.82 percent on Oct. 10, the day before the streak began.

`More Stability'

``We're seeing more stability in money-market rates,'' said Song Seng-Wun, a regional economist at CIMB-GK Securities Pte in Singapore. ``There is money there and liquidity is flowing a bit better. But I suppose financial institutions remain cautious about lending.''

The Frankfurt-based ECB today lent banks 312 billion euros ($398 billion) in its weekly auction at 3.75 percent, 243.5 billion euros more than it estimated was needed. The ECB loaned a further $70.8 billion for 84 days at 1.6 percent to boost dollar liquidity in Europe.

Borrowing among banks, essential to keep financial markets working, froze after Lehman Brothers Holdings Inc. filed for bankruptcy Sept. 15, shattering lenders' confidence they would be repaid.

In a sign some banks are still wary of lending, financial institutions deposited a record amount of cash with the ECB, lodging 280.23 billion euros overnight at a rate of 3.25 percent. Banks deposited about 279.37 billion euros on Oct. 31.

Libor-OIS

HSBC Holdings Plc, Europe's biggest lender, yesterday signaled it won't pass on to consumers or businesses the full effect of interest-rate reductions from the Bank of England. David Hodgkinson, chief operating officer of Europe's largest bank, said lenders around the world are re-evaluating the price they put on risk, raising the cost of loans when compared with levels in previous years.

The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 13 basis points to 210 basis points today. That compares with 87 basis points on Sept. 12, the last working day before Lehman filed for bankruptcy.

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

In the U.S., interest rates on the highest-ranked 30-day commercial paper slid 27 basis points to 1.74 percent, the lowest level since September 2004, according to yields offered by companies and compiled by Bloomberg. Yields on 90-day paper fell 6 basis points to a three-month low of 2.62 percent.

The Fed set the rate it's willing to accept for 90-day CP at 2.6 percent, down 1 basis point, including a 1 percentage point unsecured credit surcharge.

While the U.S. commercial-paper market began to recover last week, boosted by the Fed's Commercial Paper Funding Facility that buys short-term debt, the market is Europe is shrinking as the credit crisis causes investors to remain wary.

Issuance of European commercial paper, used by companies to cover expenses such as payroll and rent, fell in October to $694 billion from $823 billion a month earlier, Deutsche Bank AG said in a report.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

Last Updated: November 4, 2008 09:44 EST