Interbank dollar lending rates eased further in Asia on Friday as investors bet on more interest rate cuts and cash injections by central banks across the globe as major economies sank deeper into recession. Weak data from South Korea and Singapore suggested policy makers in the once high-flying Asian economies may have to ease monetary policy to help reflate their slowing economies hit by a collapse in export demand. Singapore's central bank, which steers monetary policy through currency rather than interest rates, is widely expected to flood the local money market with liquidity as it prepares to let the currency weaken when it reviews policy in April. The Federal Reserve has already cut its target rate close to zero and adopted an outright quantitative easing policy to flood the banking system with easy cash. "We are still looking at rates correcting downwards as the bank credit risk goes down and recession dampens liquidity demand," said Woon Khien Chia, local markets strategist at Royal Bank of Scotland in Singapore. Markets in Asia were mostly closed on Thursday for the New Year holiday. * Rates on three-month dollar funds in Singapore fell to 1.4175 percent -- their lowest since mid 2004 -- from 1.4425 percent on Wednesday. Traders said overnight dollar rates hovered between 0.05 percent and 0.15 percent. * Two-year dollar swap spreads were quoted at 69.75 basis points, little changed from Wednesday and still holding near their tightest levels since early 2008. 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 on Dec. 16. * South Korea's three-month certificate of deposit rates were little changed at 3.93 percent, and the spread over three-month government bills stood at 126 bps -- still tighter than a record of 172 bps hit in December. * South Korea's severe dollar funding shortage for domestic banks has now eased as the country's improving balance of payments lent some support to the won. * India's overnight cash rates fell to 5 percent from 6.4 percent on Wednesday. (Reporting by Kevin Yao; Editing by Kazunori Takada)

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