LONDON - THE cost of three-month dollar loans between banks held steady Tuesday after recent sharp drops in the wake of last week's decision by the US Federal Reserve to cut its benchmark rate to near zero per cent.

The interbank lending rate on three-month loans in dollars - known as the London Interbank Offered Rate, or Libor - was unchanged at 1.47 per cent, according to the British Bankers' Association.

The rate has fallen consistently since the Fed cut its federal funds rate from 1.0 per cent to a range between 0.0 per cent and 0.25 per cent last week and said it will use 'all available tools to promote the resumption of sustainable growth and to preserve price stability.'

Meanwhile, the rate for three-month loans in euros - known as the European Interbank Offered Rate, or Euribor - decreased around 0.04 percentage points to 3.01 per cent, while the equivalent rate for pounds fell also fell 0.04 percentage points to 2.90 per cent.

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

Rates have been high in recent months as banks have hoarded cash and worried that other lenders might collapse and not pay them back.

All three lending rates still remain well above their benchmarks set by central banks and expectations of where they will be in three months time. Both the Bank of England and the European Central Bank are expected to cut their benchmark rates early in the new year from the current 2.00 per cent and 2.50 per cent amid falling inflation and continuing poor economic data. -- AP