NEW YORK/LONDON, Oct 23 (Reuters) - Benchmark sterling interbank lending rates paused at 5-week highs on Friday after news that Britain's economy unexpectedly contracted again,
while abundant amounts of liquidity kept euro and dollar rates pinned at record lows.
Three-month sterling Libor GBP3MFSR= held steady at 0.59500 percent after steadily rising for most of this month as the prospect of more Bank of England policy easing dimmed.
In the United States, ICAP's 3-month New York Funding Rate USNYFR3M= was 0.2995 percent, up slightly from the previous session's 0.2975 percent, ICAP said. While higher, the 3-month NYFR remains near the recent all-time low of 0.2937 percent from Oct 9.
ICAP's one-month NYFR USNYFR1M= was 0.2490 percent, the highest in three weeks, versus the previous session's 0.2470 percent.
UK gilts and short-sterling interest rate futures <0#FSS:> rallied after data showed Britain's economy shrank unexpectedly in the third quarter of this year, marking the longest recession on record. For more see [ID:nONS004555].
The clear indication here that the UK remains mired in an unprecedented recession provides a compelling argument in favor of the BoE opting for a precautionary increase in the quantitative easing limit come Nov. 5, said Richard McGuire, rate strategist at RBC Capital Markets.
The BoE holds its next policy meeting on Nov. 4 and 5. Meanwhile, excess liquidity in the euro zone remained elevated at around 90 billion euros, with overnight deposits rising back over the 75 billion euro mark. [ID:nFAT006860]
That was still enough to keep EONIA fixings EONIA= stuck around 0.35 percent, despite more than 11 billion euros of one-week funds draining from the market this week.
Liquidity drains are now occurring also on a more noticeable level in the weekly (refinancing operations), which suggests mounting upward pressure on fixings in coming weeks, said Christoph Rieger, a Commerzbank rate strategist.
Until we are reaching a more critical level in deposit facility usage of around 50 billion euros or below, however, fixings should remain relatively inelastic.
Rieger said the drain of 1-week funds was an encouraging sign that more banks were able to access funding markets but he expects a decent take-up at the ECB's third, and possibly last, tender of 1-year funds in December.
Analysts polled by Reuters estimated banks would take anywhere between 30 billion and 200 billion euros at the tender.
With 1-year forwards out of December close to 1 percent, actual allotment should be close to the upper end of this range, Rieger said.
Three-month euro Libor EUR3MFSR= was unchanged at a record low of 0.68813 percent. [ID:nLN263063]
Three-month dollar Libor rates USD3MFSR= were down a smidgen at a new low of 0.28188 percent.
(Editing by James Dalgleish)