Libor falls after US cut in rates

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The cost of inter-bank borrowing fell yesterday after the Federal Reserve slashed interest rates to as low as zero and vowed to use "all available tools" to fight a year-old recession.

The three-month dollar London inter-bank offered rate (Libor) was fixed at 1.58 percent - the lowest since mid-2004 - while the spread between Libor and expected central bank rates narrowed to 141 basis points, well below October highs of more than 350 basis points.

But the spread - a measure of interbank money market stress - remained wide when compared with levels seen before the credit crisis started last year, suggesting banks remained reluctant to lend to each other.

The Fed on Tuesday cut its target rate to a range of zero to 0.25 per cent from 1 per cent and signalled its intention to buy more mortgage securities to free financial markets.