Sept. 30 (Bloomberg) -- Japan and Australia's central banks pumped $20.8 billion into the financial system, as Congress' rejection of a plan to rescue the U.S. banking industry drove up money market rates and corporate bond risk.

Japan's overnight call loan rate rose 10 basis points, or 0.10 percentage point, to 0.5 percent after the Bank of Japan added 2 trillion ($19.2 billion) to the system at 9:20 a.m. in Tokyo, from 0.4 percent before the injection, according to Tokyo Tanshi Co. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate stood at 93 basis points, close to a six-month high. The gap has averaged 45 basis points this year.

``We can be sure that funding pressures are not going to ease while there is so much uncertainty,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``Cash is going to be at a premium. There's really no end in sight.''

The surge in interest rates suggests banks remain reluctant to lend, even as central banks pour cash into global markets after Wachovia Corp. joined three European banks this week in requiring government-orchestrated rescues. The three-month London interbank offered rate, or Libor, for dollars climbed 12 basis points to 3.88 percent, the highest level since Jan. 18 and up from 2.81 percent a month ago.

The U.S. House of Representatives yesterday voted down a $700 billion government rescue plan intended to restore confidence in the banking system.

Pumping In Cash

The Bank of Japan has pumped about 17 trillion yen into the system over the past two weeks, the most in at least six years. The Reserve Bank of Australia pumped in A$1.95 billion ($1.6 billion) today and has injected more than A$2 billion a day on average since Sept. 15, more than twice the level for the first half of this year.

Banks increased holdings at RBA exchange settlement accounts by A$3.1 billion yesterday to a record A$10.65 billion, as the nation's financial institutions hoard cash.

``The fact banks want to keep more at the Reserve Bank than they lend out is a reallocation of risk,'' said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. ``It's more a sign of distress within the banking system than anything else.''

The Fed yesterday said it will pump an additional $630 billion into the global financial system. The Fed increased its existing currency swaps with foreign central banks, including the RBA, by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion.

Swap Agreements

The BOJ and the Fed will double their swap agreement to $120 billion and the RBA's facility will triple to $30 billion to boost the availability of U.S. dollars, the central banks said on their Web sites.

The cost of protecting Japanese and Australian corporate bonds from default increased.

The Markit iTraxx Japan Series 10 index rose 19 basis points to 177 basis points at 9:28 a.m. in Tokyo, Morgan Stanley prices show. The benchmark of 50 investment-grade Japanese companies increases as investors' perceptions of credit quality deteriorate. The iTraxx Australia index climbed 23 basis points to 212.5 basis points, Citigroup Inc. prices show.

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

Last Updated: September 29, 2008 21:27 EDT