FRANKFURT - THE European Central Bank (ECB) said on Tuesday it had lent more than 217 billion euros (S$420 billion) to euro zone banks as part of a regular weekly operation that saw 783 groups ask for cash.

They got as much as they needed at the ECB's new benchmark rate of 2.50 per cent following a rate cut decided last week.

The ECB had estimated commercial banks would need 195.5 billion euros to meet minimum reserve requirements that underpin lending to the economy at large.

The amount allocated was much smaller than last week's 340 billion euros, a sign of some easing of conditions on interbank lending markets.

During a second operation that provided funds for 42 days to get banks past a crunch period at the end of the year, the ECB lent 134.9 billion euros to 139 banks.

The ECB said later it had also withdrawn 137.45 billion euros in excess cash from the money markets via a so-called fine-tuning operation after having identified 'a large positive liquidity imbalance' on the last day of a period during which commercial banks must maintain minimum reserves.

The central bank had set a interest ceiling of 3.25 per cent for the funds submitted by commercial banks, but in the end paid an average of 2.94 per cent and a maximum rate of 3.05 per cent, another sign of easing tension on the markets, which expect more interest rate cuts in the months to come.

The benchmark Euribor rate for one-week interbank loans was also lower at the fixing on Tuesday at 2.55 per cent.

Central banks in recent months have supplied interbank money markets with large amounts of funds over periods ranging from a week to six months to encourage banks to begin lending freely to one another as well as to businesses and individuals.

When there is excess cash in the system, the central banks withdraw the surplus to maintain market rates close to its own benchmarks and to avoid fueling inflation in what are called fine-tuning operations.

-- AFP