By Gavin Finch and Candice Zachariahs Oct. 17 (Bloomberg) -- The cost of borrowing dollars in London for three months may fall, rounding off the first weekly decline since July, after central banks injected billions of dollars into money markets and governments guaranteed loans. The dollar rate will drop about 10 basis points to 4.40 percent today, according to David Buik, a market analyst in London at interdealer broker BGC Partners Inc. It was 4.82 percent a week ago. Hong Kong's three-month dollar price slid 15 basis points to 4.2 percent, the biggest drop in three weeks. The Singapore rate fell for a fourth day, the longest run of declines since May. ``Libor rates continue to edge down, bringing the prospect of some rejuvenated interbank lending that little bit closer, even if it is still some way distant,'' said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment- banking arm of French lender Credit Agricole SA. Rates fell this week after central banks joined forces to offer lenders an unlimited supply of dollars and the European Central Bank did the same with euros. Still, lending costs among banks remain near record highs relative to the Federal Reserve's benchmark rate of 1.5 percent. The spread between three-month dollar Libor and the Fed rate was 300 basis points yesterday, up from 108 basis points a month ago. ``We've had hundreds of billions of dollars pumped in and Libor is still at about 4.5 percent when the Federal Reserve is expected to cut the benchmark rate to 1 percent,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., a unit of the world's largest inter-bank broker. ``That's a ridiculous gap. Money market rates are slowly improving, though the glacial pace is a bit of a concern.'' Rate Bets Futures traded on the Chicago Board of Trade show a 46 percent chance the Fed will cut the target rate for overnight bank loans by 50 basis points at its next meeting on Oct. 29, from no chance a week ago. The odds of a reduction to 1.25 percent are 54 percent, from 90 percent a week earlier. The cost of protecting Asia-Pacific bonds from default fell after money market rates declined this week in Australia, Hong Kong and Japan. The Markit iTraxx Japan index fell 7 basis points to 200 at 9:04 a.m. in Tokyo, according to prices from Credit Suisse Group AG. The benchmark of 50 investment-grade Japanese companies, including All Nippon Airways Co. and Japan Tobacco Inc., falls as investor perceptions of credit quality improve. Costs in Europe also dropped. ``The market is starting to believe that central banks' policy actions are taking out some of the financial systemic risk,'' said Craig Saalmann, a Sydney-based credit strategist with JPMorgan Chase & Co. Lending Costs The Markit iTraxx Australia index, tied to the debt of 25 companies including BHP Billiton Ltd., declined 12.5 basis points to 215, Citigroup Inc. data show. Money-market rates jumped after Lehman Brothers Holdings Inc. went bankrupt Sept. 15. The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, narrowed 1 basis point to 339 basis points today, compared with 364 points a week ago. The spread was 24 basis points on Jan. 24. The difference between what banks and the Treasury pay to borrow money, the so-called TED spread, was at 408 basis points today, down from 464 basis points on Oct. 10, the most since Bloomberg began tracking the data in 1984. Funding costs eased this week in Asia after Australian Prime Minister Kevin Rudd kicked off a round of regional bank guarantees on Oct. 12. Central Bank Action The Reserve Bank of Australia poured A$2.9 billion ($2 billion) a day into the country's financial system this week, about three times the daily average in the first seven months of 2008. The Bank of Japan removed 2.2 trillion yen ($22 billion) from money markets in the past four days, heading for the first weekly drain since Sept. 12. The central bank, which injected 31.5 trillion yen since Lehman collapsed, this week said it would offer lenders as many dollars as they want, joining European counterparts. ``Short-term money markets are regaining stability,'' said Jun Ishii, a fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. Japan's one-month deposit rate dropped 0.25 percentage point to 1.1 percent, heading for the biggest weekly decline since 2000. To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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