The cost for European banks to borrow in dollars fell for a second day after central banks led by the Federal Reserve cut the cost of emergency dollar loans. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 121 basis points below the euro interbank offered rate at 9:02 a.m. in London, from minus 131 basis points yesterday. The gap had widened to 162.5 below Euribor yesterday, the most in three years, before the Fed move. The premium banks pay to borrow dollars overnight will fall by half a percentage point to 50 basis points, the Fed said yesterday. The so-called dollar swap lines will be extended by six months to Feb. 1, 2013. The one-year basis swap was 70 basis points under Euribor, from minus 79 basis points yesterday, data compiled by Bloomberg show. A basis point is 0.01 percentage point. Lenders increased overnight deposits at the European Central Bank, placing 304 billion euros ($408 billion) with the Frankfurt-based ECB yesterday, up from 297 billion euros on Nov. 29. That compares with a year-to-date average of 81 billion euros. To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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