-- Dollar-funding costs off three-year highs but still elevated -- Renewed euro-zone worries could yet send dollar-starved banks to ECB LONDON (Dow Jones)--The premium European banks pay to access dollars was below Friday's three-year-record highs as the beleaguered euro staged a recovery but remained at elevated levels in Monday trade, providing continued evidence of funding stress in the interbank market. The three-month euro-dollar cross-currency basis swap--a key money-market indicator of dollar funding costs--was quoted around a mid-price of minus 148.5 basis points, data from the interbank dealer ICAP showed. Ahead of the weekend it briefly fell to as low as minus 165.5 basis points--a level not seen since October 2008 at the height of the global financial crisis, ICAP said. At that rate, the market had implied that banks were willing even to pay counterparties to borrow euros in return for dollars for three months at the prevailing interbank rate--something that could happen again in the days ahead if euro-zone worries resurface. "(We) seem to face the very real possibility of plunging materially through the zero level," said ICAP strategist Chris Clark, citing the week's busy schedule of bond sales by indebted euro-zone governments and the growing discount European banks were having to offer in order to swap euros into dollars. "After a positive open for markets in general, we find that pressure on euro-dollar basis markets remains resolutely downwards," Clark said. He adding that the implied one-month euro-dollar cross-currency basis swap is now also near three-year lows at minus 104.5 basis points but that access to shorter-dated dollar funding appeared still to be ample. The deepening of the euro-zone sovereign debt crisis and concerns over the creditworthiness of European banks due to their heavy sovereign-bond holdings means European banks are being forced to lend euros at ever-lower interest rates to get dollars in return. In Friday trade they had applied a discount of more than 1.6 percentage points over the rate banks charge each other to lend euros. That rate, known as Euribor, was fixed Monday for three-month loans, at 1.477% from 1.475% Friday. The high cost of swapping euros into dollars also meant that some of the region's weakest financial institutions could yet be forced into relying on the European Central Bank to get a hold of U.S. currency. The ECB charges roughly 1.10-percentage-points over the prevailing market rate, which could start to look attractive, even though banks have to post collateral instead of cash when tapping the facility. Data late Friday showed the ECB bringing in funds to fulfil this role. It drew $552 million from the Federal Reserve in the week ended Nov. 23, having borrowed $895 million in the previous week, tapping central-bank dollar swap lines reintroduced to avert the credit crunch seen three years ago. -By William Kemble-Diaz, Dow Jones Newswires; 44-20-7842-9347; william.kemble-diaz@dowjones.com; @djfxtrader

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