Aug. 31 (Bloomberg) -- Trading of futures and options on exchanges fell 13 percent to $600 trillion in the second quarter, led by a drop in short-term interest rate contracts.

Trading declined from a record $692 trillion in the first quarter, the Bank for International Settlements said in a report today. The dollar amount underlying short-term interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, fell 14 percent to $473 trillion in the three months ended June 30, Basel, Switzerland-based BIS said.

The drop was led by U.S. dollar-denominated contracts, and options and futures on three-month Eurodollar rates as liquidity in money markets deteriorated, BIS said. The numbers indicate that market speculation on the direction of government monetary policy in the U.S. and Europe was more muted than in the first quarter.

Eurodollars are dollar-denominated deposits of banks outside of the U.S.

Trading in stock index futures and options fell 8.2 percent to $67 trillion in the second quarter, led by euro- and U.S. dollar-denominated contracts. Contracts linked to currencies rose 12 percent to $7.5 trillion, led by the euro.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Investors and companies use them to hedge against, or speculate on, changes in prices or rates. They include futures, which are agreements to buy or sell assets at a set date and price; and options, which are the right but not the obligation to do so.

Trading in commodities derivatives declined from a record, falling 7.7 percent to 434 million contracts. Trading in the derivatives was still up 37 percent from a year earlier, BIS said. The decline in commodities derivatives was led by contracts linked to agricultural products on Asian exchanges, BIS said, citing a slowdown in price increases during the quarter.

To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net

Last Updated: August 31, 2008 15:01 EDT