Sept. 28 (Bloomberg) -- Bank credit risk rose amid renewed concern lenders are having difficulty raising funds in the money markets, according to traders of credit-default swaps.

Contracts on the iTraxx Financial Index of subordinated debt, a benchmark for the cost of protecting the bonds of 25 European banks and insurers against default, rose 4 basis points to 49 basis points, according to Deutsche Bank AG. The index increases as perceptions of credit quality worsen.

Northern Rock Plc has borrowed 8 billion pounds ($16.4 billion) from the Bank of England since the Newcastle-based mortgage lender sought emergency funding two weeks ago, the Financial Times reported today. Some Canadian lenders are also having difficulty refinancing in the money markets, Bank of Montreal Chief Financial Officer Karen Maidment said yesterday.

``People are watching the money markets closely and are starting to feel a bit uneasy,'' said Hans Peter Lorenzen, a credit analyst at Citigroup Inc. in London. ``Generally, money markets have tightened up in the past few days.''

The cost of borrowing euros for three months stayed at the highest in more than six years today, signaling that banks remain reluctant to lend cash to each other.

The London interbank offered rate that banks charge each other for three-month loans in euros is at 4.79 percent, 79 basis points more than the European Central Bank's benchmark rate and the highest since May 2001, according to the British Bankers' Association.

Lending Standards

``More worrisome is the impact that the contraction in liquidity has had on the interbank lending market,'' Jeff Meli and Melody Vogelmann, credit analysts at Barclays Capital in New York, wrote in a note to investors. ``Stress here, which is yet to abate, will likely have broader effects on the economy through a tightening of lending standards.''

Bank of Montreal's Maidment yesterday said Canadian banks haven't been able to roll over all of their asset-backed commercial paper, short-term IOUs secured by home and car loans, though the problem has improved since September. Spokesman Paul Deegan said Maidment wasn't referring to her bank, which is rolling its commercial paper at ``prevailing market prices.''

The CDX North America Investment-Grade Index Series 9 rose 2.25 basis points to 55.5 basis points in New York today, according to Deutsche Bank.

Credit-default swaps on H&R Block Inc., the biggest U.S. tax preparer, rose by the most in three years today. The Kansas City, Missouri-based company has used emergency bank lines to pay off more than 90 percent of the short-term debt creditors refused to finance last month. Contracts on its debt jumped 37 basis points to 165 basis points, CMA Datavision prices show.

Northern Rock

Contracts on Northern Rock, which said this week it is in takeover talks, were little changed at 135 basis points today after soaring as high as 210 basis points Sept. 15.

Northern Rock was bailed out when investors shunned short- term debt markets. The bank was more vulnerable than competitors because it relied on money markets for more than 70 percent of its funding.

IKB Deutsche Industriebank AG, the German lender that had to be rescued by the German government over subprime losses, said first-quarter profit tumbled after the bank wrote down asset values. IKB credit-default swaps were little changed at 75 basis points after the Dusseldorf-based lender said net income in the three months through June 30 fell 67 percent to 11.7 million euros from 35.1 million euros a year earlier.

Contracts on London-based Barclays Plc, the U.K.'s third- biggest bank, rose 3 basis points to 39.5 basis points.

Credit-default swaps on the iTraxx Crossover Series 8 Index of 50 European companies with mostly high-risk, high-yield credit ratings increased 15 basis points to 326 basis points, according to JPMorgan.

The iTraxx Europe index of 125 companies with investment- grade ratings rose 1.5 basis points to 37.25 basis points, JPMorgan prices show.

A basis point on a credit-default swap contract protecting 10 million euros ($14 million) of debt from default for five years is equivalent to 1,000 euros a year.

To contact the reporter on this story: Hamish Risk in London hrisk@bloomberg.net

Last Updated: September 28, 2007 18:01 EDT