Australia injected a huge amount of cash into its markets on Monday while India's money market won slight respite from another cut in banks' reserve requirements as short-term lending remained stressed globally.
U.S. dollar funding, which has been particularly hard-hit by banks' reluctance to lend to each other, stayed pricey in Asia at 3.5-4.5 percent for overnight funds, although volume was thin and trades were struck for Tuesday/Wednesday on account of the U.S. market closure for Columbus day on Monday.
But Eurodollar futures jumped in expectation rates will be set lower in London after crisis talks at the weekend by Group of Seven nations and other world leaders produced an array of initiatives aimed at restoring confidence in battered markets.
The December contract was up 15 basis points and March '09 contract rose 12 basis points.
Officials from India and Indonesia tried to soothe their markets with assurances of cash and guarantees for depositors, and stock markets in Australia and Asia rallied.
The British government could pump about 45 billion pounds into four troubled major banks, sources said, in addition to wide guarantees for short- and medium-term borrowing by banks.
Traders in Singapore said there were few transactions in dollar deposits. Those that did occur were for tom-next funds, where banks borrow for a day from Tuesday to Wednesday.
"Most people are on the sidelines. Tom-next range is between 4 and 6 percent but most trades are between 4-4.5," said a trader in Singapore.
That essentially means overnight dollar funding is between two to three times the Federal Reserve's 1.5 percent target rate, in spite of massive cash injections and last week's simultaneous rate cuts.
Banks in countries such as Australia and South Korea, which rely heavily on overseas funding, have borne the brunt of the volatility in dollar funding.
Just a day after the Australian government decided to guarantee the country's entire deposit base and back refinancing requirements of Australian banks, the central bank injected A$2.849 billion ($1.9 billion) in its regular daily operation.
That was above an estimated need of A$1.05 billion, effectively adding around A$1.8 billion and keeping the banks' cash cushion with the central bank around a historic high of A$10 billion.
Australian dollar LIBOR rates have been under strain owing to the tight money market conditions. Three-month LIBOR surged to 7.5 percent on Friday, 150 basis points above the 6.0 percent cash rate, which was the biggest gap ever.
India cut the cash reserve ratio for banks by a hefty 150 basis points to 7.5 percent on Saturday, releasing about $12 billion into the banking system. Overnight call rates eased about 5 percentage points from Friday to about 10 percent.
Traders said more central banks will have to step into money markets like Australia has done, to guarantee interbank lending and removing the deep distrust banks have of each other after the collapse of heavy-weights such as Lehman Brothers and Bear Sterns.
"It is perhaps at this stage the best central banks can do, but the market might not be satisfied," said Takahira Ogawa, director of Asian sovereign ratings at Standard & Poor's.
The underlying problems -- namely the deep doubts over asset quality at banks, the U.S. housing crisis and anxiety over which investment banks, fund managers or insurance firms will be next hit -- will continue to plague market participants, Ogawa said.
(Reporting by Vidya Ranganathan; Editing by Neil Fullick)