The rate on three-month loans in dollars - known as the London Interbank Offered Rate, or Libor - rose slightly to 2.20 percent from 2.17 per cent on Monday.

The increase in the rate - which is important both for the financial sector and the wider economy, as it determines the cost of loans to households and businesses - suggests banks are worried about the health of financial institutions.

This fear does not appear to have been relieved by news the US Treasury will inject $20 billion (S$ 30.35 billion) in cash into Citigroup and take on hundreds of billions of dollars of risky assets.

The rate for three-month loans in euros - known as the European Interbank Offered Rate, or Euribor - decreased around 0.04 percentage points to 3.93 percent on Tuesday, its lowest level since April 2007.

The equivalent rate for pounds fell to a five-year low of 3.96 per cent on Tuesday from 3.99 per cent on Monday.

All three rates remain significantly above their benchmarks set by central banks - 1 per cent in the U.S., 3.25 per cent in the 15-nation euro zone and 3.00 per cent in Britain.

However, the spreads have fallen consistently over the last month or so after massive intervention from governments and central banks - which included trillions of dollars in bank debt guarantees, pledges to rescue ailing banks, liquidity injections by central banks and interest rate reductions.

Before the credit crunch, widely seen to have begun in August 2007, the spread between bank lending rates and official base rates was only around 0.5 percentage points.

Interbank rates are important because they affect the cost of loans in the wider economy, for both businesses and individuals.

They skyrocketed in recent months as banks worried that other lenders might collapse. -- AP