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Dollar Funding Costs Drop to Two-Month Low in Euro Money Markets

Dec. 12 (Bloomberg) -- The cost for European banks to borrow in dollars fell to the lowest in more than two months, according to a money-markets indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars was 22 basis points below the euro interbank offered rate at 8:30 a.m., from minus 23 yesterday, according to data compiled by Bloomberg. The measure is the lowest since Oct. 5.

The one-year basis swap was 24 basis points below Euribor from minus 26. A basis point is 0.01 percentage point.

A measure of European banks’ reluctance to make unsecured loans to one another was little changed with the difference between Euribor and overnight index swaps, known as the Euribor-OIS spread, at 12.6.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at a record-low 0.067 percent yesterday from 0.069 percent the day before. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, rose to a five-day high of 4.9 basis points.

Lenders increased overnight deposits at the European Central Bank yesterday to 237 billion euros ($308 billion) from 229 billion euros the day before.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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