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08-13-2007, 06:01 AM
Breaking: ECB Injects Cash for Third Day to Avert Credit Crunch (Update6)
By Christian Vits

Headquarters of the ECB
Aug. 13 (Bloomberg) -- The European Central Bank lent emergency money to banks for a third day, paring the amount and declaring that markets are returning to normal.

The ECB loaned 47.7 billion euros ($65 billion) to banks, down from 61.05 billion euros on Aug. 10. The overnight rate at which banks lend euros to each other fell to as low as 4.03 percent from 4.16 percent earlier today. It spiked to 4.62 percent on Aug. 9, a six-year high. The ECB's benchmark refinancing rate is 4 percent.

The ECB, the U.S. Federal Reserve and other central banks injected $154 billion into money markets on Aug. 9 and $135.7 billion on Aug. 10 amid concern that U.S. subprime mortgage losses will curtail lending. Central banks in Japan and Australia, which pumped cash into their markets last week, today refrained from providing emergency funds. Stocks rallied worldwide and U.S. index futures advanced.

``The situation is gradually normalizing,'' said Jose Luis Alzola, director of economic and market analysis at Citigroup Global Markets in London. ``However, fears will subside gradually rather than quickly.''

European two-year note yields held near a three-month low as investors, fearing the subprime mortgage crisis is spreading, favored less risky government bonds.

The yield on the two-year benchmark note was at 4.2 percent by 11:15 a.m. in London, after touching 4.16 percent on Aug. 10, its lowest level since May 11. The yield on the German 10-year bund, Europe's benchmark, was at 4.34 percent.

`Normalizing'

The Frankfurt-based ECB said it ``notes that money market conditions are normalizing and that the supply of aggregate liquidity is ample.''

Central banks in South Korea, the Philippines, Singapore, Indonesia, India, and Malaysia have said they are prepared to add cash into their systems if required. The Reserve Bank of New Zealand today said it was ``business as usual'' in its conduct of daily operations.

The International Monetary Fund said last week that ``prompt action'' by central banks to add cash to the banking system should help avert a crisis in credit markets.

``Looking forward, while the situation is still evolving, we continue to believe that the systemic consequences of the re- assessment of credit risk that is taking place will be manageable,'' the IMF said.

To contact the reporter on this story: Christian Vits in Frankfurt cvits@bloomberg.net

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPQmSvc90fsQ&refer=home