Commercial banks took about $32 billion (20 billion pounds) in a European Central Bank offer of dollars on Wednesday, with demand for three-month dollar funding halving from last month.
In the second three-month tender since the bank slashed its cost of dollar funding, 34 banks asked for $25.5 billion, down from $50.7 billion in December. the interest rate in the operation was fixed at 0.58 percent.
The three-month offer replaced an expiring $1.4 billion tender from October, which was still conducted at the higher interest rate.
Top central banks around the world in November announced steps to stave off a credit crunch among banks in Europe that are struggling with the region's debt crisis.
The interest rate charged on the dollar tenders was reduced to OIS (overnight indexed swaps) plus 50 basis points from plus 100.
Some 12 banks also took $6.2 billion in the ECB's 7-day dollar tender, with the same annual interest rate as for the 3-month funds.
The weekly tender replaces $33 billion in maturing funds from a 14-day operation over the end-of-year period, when banks typically scramble for funds.
Banks were guaranteed to receive all the funds they requested in both operations.
The swap lines between the U.S. Federal Reserve and other major central banks are intended to ensure banks outside the United States have easy access to dollars, which banks in Europe have been having more difficulty obtaining in the market as investor concerns about the euro zone debt crisis have grown.
The Fed set up dollar swaps with the ECB and the Swiss National Bank in December 2007. The facilities are unlimited.
The total use of the lines peaked at more than $580 billion in December 2008. Demand for Fed dollar swaps was high right after their reintroduction in May 2010, with $9.2 billion scooped up on May 12, all through the ECB.
But demand had been muted since early June of last year until the funding costs were slashed.
(Reporting by Sakari Suoninen; Editing by John Stonestreet)