UPDATE 1-Dollar rates rise in Asia despite global rate cuts

October 9, 2008 at 4:01 am Leave a comment

SINGAPORE, Oct 9 (Reuters) – The cost of overnight dollar funding rose as high as 7 percent in Asia on Thursday, reflecting persistent worries in credit markets even after coordinated interest rate cuts by major central banks around the world. 

Overnight dollar funds <USDOND=> were quoted at 5.5-7 percent in Singapore, 2.75-7 percent in Hong Kong and around 6.5 percent in Kuala Lumpur, traders said. The rates ranged between 3-6.5 percent in Asia on Wednesday. 

Last month, overnight dollar rates shot up to 10 percent in Asia, spurred by the high-profile collapse of Lehman Brothers (LEHMQ.PK: Quote, Profile, Research, Stock Buzz). 

“Asian credit market remains in deep freeze as buyers are playing defensive,” said Steve Wang, credit analyst at TriBridge Investment Partners in Hong Kong. 

“The situation is exacerbated by mounting selling pressure from generally widespread client interest for redemption,” he added. 

Suresh Ramanathan, a strategist at CIMB Investment Bank in Kuala Lumpur, said commercial banks were reluctant to lend to each other even as central banks in South Korea and Taiwan joined a global rate-cutting campaign. 

The U.S. Federal Reserve cut its benchmark interest rate by half a percentage point to 1.5 percent, and China, the European Central Bank and central banks in Britain, Canada, Sweden and Switzerland followed suit. [ID:nL8116323] 

The coordinated rate cuts were the latest salvo from policymakers in response to the financial crisis that has forced commercial banks to hoard cash, rather than lending to each other. 

On Thursday, three month dollar rates <USD3MD=> held steady between 4.3 and 5.5 percent in Singapore, 5.5-6 percent in Hong Kong and were moderately higher in Kuala Lumpur, traders said. (Reporting by Kevin Yao; Editing by Anshuman Daga)

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