Oct. 27 (Bloomberg) -- Money-market rates in London were little changed as concern the credit crisis has dragged the global economy into a recession overshadowed efforts by policy makers to stimulate bank lending with trillions of dollars.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell less than 1 basis point to 3.51 percent today, the British Bankers' Association said. The comparable rate in euros also dropped less than 1 basis point, to 4.90 percent. The overnight rate for pounds advanced for a second day, climbing to 4.81 percent.

``The fact that equity markets across the globe have been falling so heavily has sort of stalled the improvement in Libor,'' Laurent Fransolet, head of European fixed-income strategy at Barclays Capital in London, said in a Bloomberg Television interview. ``People are not really looking to take on any risk.''

Hong Kong's Hang Seng Index plunged the most since the 1989 Tiananmen Square crackdown and Europe's Dow Jones Stoxx 600 Index slid a fifth straight day amid concern the slowdown will crimp company earnings. The cost of protecting European corporate bonds from default rose to an all-time high and South Korea slashed interest rates by a record amount.

Credit markets froze after Lehman Brothers Holdings Inc. collapsed on Sept. 15, prompting governments and central banks worldwide to bail out financial institutions and inject cash into money markets. Banks are reluctant to lend, even as funding costs declined the past week, on concern a global recession will undermine economies around the world.

German Sentiment

Business confidence in Germany, Europe's biggest economy, slid to the lowest level in more than five years this month as the outlook for growth dimmed, a report showed today. The International Monetary Fund said yesterday it will lend Ukraine $16.5 billion and give Hungary ``a substantial financing package'' as recession concerns spread.

The European Central Bank today loaned banks 13.6 billion Swiss francs ($11.7 billion) for seven days via a currency swap with the Swiss National Bank. Policy makers in the U.K. also made $3 billion of overnight cash available to financial institutions.

In another sign that banks remain wary of lending to each other, financial institutions lodged 202.6 billion euros in the ECB's overnight deposit facility on Oct. 24, up from 199.2 billion euros the previous day and a record 239.6 billion euros on Oct. 17. The daily average in the first eight months of 2008 was 427 million euros.

Costs Elevated

``We see money markets remaining tight because the fear and uncertainty haven't gone away,'' said Adam Carr, senior economist in Sydney for ICAP Australia Ltd., a unit of the world's biggest interbank broker. ``Private borrowing costs are still elevated even after governments intervened to aid banks and central banks coordinated to cut rates.''

ECB President Jean-Claude Trichet said the bank may cut interest rates again on Nov. 6 as the crisis damps inflation.

``I consider it possible that the governing council would decrease interest rates once again at its next meeting,'' Trichet said in a speech in Madrid today. ``It is not a certainty, it is a possibility.''

Yields on commercial paper climbed as the Federal Reserve began its program of buying the debt directly from companies, part of the central bank's efforts to unfreeze credit markets.

Rates on the highest-ranked 30-day commercial paper jumped 25 basis points to 2.88 percent, according to yields offered by companies and compiled by Bloomberg. Rates on paper due in 90 days rose to 3.34 percent, compared with the 2.88 percent rate demanded by the Fed, including an unsecured credit surcharge.

`Understandable' Tightening

The rate for Hong Kong dollars, known as Hibor, gained 45 basis points to 3.74 percent today, the biggest increase since Sept. 18. Hong Kong's overnight interbank rate also rose for the first time in two weeks, jumping 14 basis points to 0.989 percent. The head of the city's de-facto central bank said the global credit crunch was spreading to local institutions.

It is ``understandable'' the city's banks are tightening lending, Hong Kong Monetary Authority Chief Executive Joseph Yam told reporters today.

Hong Kong added HK$7.754 billion ($1 billion) to the money system today to prevent the city's currency from strengthening beyond its fixed exchange rate. The Bank of Japan added 600 billion yen ($6.5 billion) to the financial system.

About $360 trillion of financial products worldwide, from mortgages to company loans and derivatives, is tied to the Libor. Libor is set by a panel of banks in a daily survey by the British Bankers' Association by noon in London. Members provide estimates on how much it would cost to borrow in 10 currencies for terms ranging from one day to a year.

Libor-OIS

The Libor for three month dollars declined 90 basis points last week, extending a 40 basis point drop a week earlier. The overnight rate also fell for the second consecutive week.

The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, widened 1 basis point to 262 basis points today. It was at 87 points before Lehman filed for bankruptcy protection. A basis point is 0.01 percentage point.

The difference between what banks and the U.S. Treasury pay to borrow for three months, the so-called TED spread, was at 266 basis points, compared with 114 basis points two months ago.

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Garfield Reynolds in Sydney at greynolds1@bloomberg.net

Last Updated: October 27, 2008 11:15 EDT