Dollar rates up, despite US Citi rescue.

Stock market investors welcomed the U.S. government's rescue of Citigroup, a debt guarantee program for banks and U.S. president-elect Barack Obama's nomination of New York Federal Reserve President Timothy Geithner as his choice for Treasury secretary.
A general if slight easing of money market tensions was signaled by the narrowing in the premium paid for London interbank offered rates (Libor) over anticipated central bank policy rates or Overnight Index Swaps (OIS).
The Federal Reserve started lending to money market funds via its new cash facility, the Money Market Investor Funding Facility (MMIFF), on Monday.
Yet participants in short-term lending markets are nervous that even though central banks have added unprecedented liquidity into the global financial system, year-end pressures may still prove intense as banks hoard cash because of the global financial crisis.
At the British Bankers' Association's daily fixing on Monday, dollar-denominated Libor, the leading global benchmark for short-term loans, rose.
"Three-month Libor is way up versus one-month Libor and that's because one-month Libor is not bridging year end yet," said Ray Stone, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.
However, three-month euro and sterling


Libor rates fell.
The drive to reduce counterparty risk is happening in the run-up to a time when banks traditionally hoard cash to boost balance sheets for accounting purposes, cooling some of the enthusiasm over the U.S. news.
European Central Bank data on Monday suggest banks are still inclined to deposit the extra liquidity provided by central banks back with the central bank, a lower but safer rate of return being preferable to risking lending to another bank.
Overnight deposits at the ECB rose to 224 billion euros as of Nov. 23 from 202 billion euros reported on Friday. .
"For (this) week and those remaining before the end of the year, bank trading desks will be very reluctant to absorb any new risk," ICAP money market strategists said in a note on Monday.
Money markets welcomed the Federal Deposit Insurance Corp's changes on Friday to a debt guarantee program for U.S. banks that could smooth the way for hundreds of billions of dollars of top-rated debt to be issued..
The U.S. government's bailout of Citigroup also soothed some of the more acute concerns in the market.
"This is a bit premature as no individual policy measure is a panacea for this crisis but it has helped keep dollar Libor/OIS spreads in check, producing a technical tightening in credit spreads in the dollar money market even with Libor edging higher today," said Lena Komileva, head of G7 Market Economics at Tullett Prebon.
"So Libor/OIS spreads are set to continue to fall but there is no end to the credit crisis in sight," Komileva added.
(Reporting by Jamie McGeever and John Parry; Editing by Chizu Nomiyama) Keywords: MARKETS MONEY

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