Money markets futures signal worries of higher us rates

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* Bernanke offers no hints of QE3, deferred contracts fall * Nearby rates futures edge up on low-rate pledge * ECB auction, lower Libor also help nearby futures By Richard Leong NEW YORK, Feb 29 Deferred U.S. interest rates futures fell on Wednesday on jitters that borrowing costs could rise sooner than expected after Federal Reserve Chairman Ben Bernanke offered no hints the U.S. central bank is ready to flood more cash into the economy. Some traders had bet the Fed would soon embark on a third round of quantitative easing by buying more mortgage-backed securities in an effort to hold down mortgage rates and help a fragile housing market. Bernanke also gave no clues whether the Fed is considering whether it would extend its "Operation Twist," which will end in June. Without more large-scale asset purchases, some traders worry that the London interbank offered rates and other lending costs would rise and hit bank profits. "If you are not going down the QE3 route, that could put upward pressure on Libor and more pressure on banks," said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Bank in New York. Eurodollar futures, which gauge expectations of dollar Libor, for Dec 2013 delivery and beyond fell anywhere from 0.5 to 8.00 basis points in late afternoon trading. While the longer U.S. rate outlook became less certain, Bernanke assured financial markets that the Fed is committed to its near-zero interest rate policy for a few more years. Bernanke told the U.S. House of Representatives Financial Services Committee that the Fed's guidance on exceptionally low interest rates through at least late 2014 is warranted given its outlook for sluggish growth and tame inflation. Nearby Eurodollar futures for March 2012 to June 2013 delivery traded up 0.5 to 3.0 basis points on the day. The ongoing decline in dollar Libor and perception of a positive loan auction from the European Central Bank also supported nearby Eurodollar futures, analysts said. "There is no fear in the market that near-term rates will spike higher," said Alex Manzara, vice president at TJM Futures in Chicago. Three-month dollar Libor fell on Wednesday to 0.48425 percent, the lowest since mid-November. Libor is a rate benchmark for $350 trillion worth of financial products worldwide. Earlier Wednesday, the ECB awarded 530 billion euros of cheap three-year loans to banks in an effort to ensure ample cash is available to lend and to hold down borrowing costs. A total of 800 banks borrowed money, with demand exceeding the 500 billion euros forecast in a recent Reuters poll and the 489 billion allotted in the first such operation in December.