Easy money keeps dollar rates low at year-end

SINGAPORE, Dec 31 - Ample liquidity kept interbank dollar lending rates low 0in Asia on Wednesday amid expectations that money markets would continue to heal into the new year.

Central banks have pledged further interest rate cuts and cash injections after the Federal Reserve cut its target rate close to zero on Dec. 16 and adopted an outright quantitative easing policy to flood the banking system with easy cash.

The Fed on Tuesday awarded $102.98 billion of 83-day loans in the latest Term Auction Facility auction and said it will start buying mortgage-backed securities -- the latest move to calm the financial market.

* Rates on three-month dollar funds in Singapore <SIUSDD=ABSG> fell to 1.4425 percent -- their lowest since mid 2004 -- from 1.4533 percent on Tuesday.

* Two-year dollar swap spreads <USD2YTS=RR> <SMKR99> were quoted at 69.25 basis points, widening moderately from 67.5 basis points on Tuesday but still holding near their tightest level of the year.

The two-year U.S. swap spread -- a gauge of counterparty risk and thus financial system stress -- has now shrunk almost 40 basis points since the Fed slashed rates to virtually zero and said it would boost its balance sheet to help the economy.

* South Korea's severe dollar funding shortage for domestic banks <KRUSCS=BGCP> has eased as the country's improving balance of payments lent some support to the won <KRW=>.

* South Korea's three-month certificate of deposit rates <KRCD=KQ> were little changed at 3.93 percent, and the spread over three-month government bills <KRTSY3M=KQ> stood at 126 bps -- still tighter than a record of 172 bps hit earlier this month.

* China's benchmark money market rate, the weighted average seven-day repo rate <CN7DRP=CFXS>, fell to one percent from 1.2 percent on Tuesday.