By Keith Jenkins May 21 (Bloomberg) -- The rate banks say they pay for three-month loans in dollars rose to the highest level in almost 10 months as Europe’s sovereign-debt crisis made institutions reluctant to lend. The London interbank offered rate, or Libor, for such loans rose for a ninth straight day to 0.497 percent today, from 0.484 percent yesterday, according to data from the British Bankers’ Association, the steepest rate since July 24. The dollar Libor- OIS spread, a gauge of banks’ reluctance to lend, was almost the widest since Aug. 13. Libor has risen as banks become more hesitant to lend to potentially risky counterparties on concern the quality of financial institutions’ collateral is deteriorating as a result of the euro-region’s financial crisis. “We’re seeing risk aversion intensifying, as well as a widening of risk aversion across asset classes,” said Peter Chatwell, an interest-rate strategist at Credit Agricole SA in London. “That raises concern over counterparty risk and is pushing rates higher in the interbank market.” Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. Dollar Libor is set by 16 banks in a daily survey by the BBA before 11 a.m. in London. Contributing banks provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Libor-OIS Spread The dollar Libor-OIS spread was 25 basis points, little changed from yesterday. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, surged to 364 basis points, or 3.64 percentage points, after the 2008 collapse of Lehman Brothers Holdings Inc. The three-month rate had its 12th straight week of increases even after the European Union announced an almost $1 trillion backstop to assist its most indebted members. Among the measures announced, the Federal Reserve reopened dollar currency swaps with major central banks to ease funding pressure facing the euro-region lenders. WestLB AG contributed the highest dollar Libor rate today, 0.555 percent. The German state-owned lender, which received state aid during the financial crisis, said yesterday its first- quarter profit slumped 82 percent after a decline in the value of European government bonds hurt trading results. HSBC Holdings Plc submitted the lowest dollar Libor rate, at 0.42 percent. The BBA strips out the four highest and lowest rates received, calculating the average of the middle eight. The three-month rate for euros, or euro Libor, was unchanged at 0.636 percent today, the highest level since Jan. 11. The three-month euro interbank offered rate, or Euribor, advanced to 0.695 percent, from 0.692 percent, according to the European Banking Federation. That’s the highest since Jan. 5. To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net

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