By William L. Watts, MarketWatch LONDON (MarketWatch) -- Euro-zone banks were less eager than expected to tap a European Central Bank three-month loan facility on Wednesday, easing liquidity-related fears about the health of the financial sector. The ECB said it allotted 131.9 billion euros ($161.1 billion) in three-month tenders at a fixed rate of 1% in the refinancing operation, news reports said. The refinancing was closely watched, coming ahead of the expiration Thursday of a €442 billion 12-month refinancing operation. Economists had widely expected banks to roll over around €250 billion in the 12-month loans. The euro (CUR_EURUSD 1.2289, +0.0105, +0.8618%) extended a gain versus the U.S. dollar to trade at $1.2261, a rise of 0.6% on the day. European bank shares rose and European stocks posted stronger gains. See Europe Markets. The operation was widely viewed as a gauge of the health of the banking sector amid mounting concerns over the ability of banks in Spain and elsewhere to meet funding needs. High demand at the auction would have underlined worries about the interbank funding market, strategists said.

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