ECB Offers to Boost Liquidity

FRANKFURT -- The European Central Bank said Friday that it would continue offering banks additional funds at least until the end of the year to counter renewed tensions in the money market, where interbank lending rates are climbing again.

Stress in credit markets has seen a fresh wave of cash hoarding among banks which have absorbed repeated hits on their balance sheets in recent weeks and which fear funding problems over the holiday period.

"To counter the re-emerging risk of volatility, the ECB intends to reinforce ... for as long as is needed and at least until after the end of the year, its policy of allocating more liquidity than the benchmark amount in main re-financing operations," the bank said.

The ECB's surprise announcement, which was similar to one it made when markets were first hit by the credit crunch in August, came after interbank lending rates rose again on Friday, adding to a week of steep increases.

London interbank offered rates for two-month euro deposits rose to 6 1/2 year highs and three-month euro rates posted their biggest weekly rise since mid-August on persistent concerns over bank liquidity around year's end.

The three-month euro zone interbank lending market has been one of the hardest hit by the credit crunch over the past three months. European banks as well as their U.S. counterparts were heavily exposed to losses from a U.S. subprime mortgage crisis.