Short-term key interest rates spiked in Singapore yesterday ahead of an expected US rate hike next month.

Market watchers also say the normally sticky short-term interest rates - the one-month and three-month Sibor - are playing catch-up.

"The market may be pre-empting the December Fed hike," said DBS Bank rates strategist Eugene Leow.

The United States Federal Reserve is widely expected to hike interest rates next month, which would make it the third rise this year.

The benchmark three-month Sibor, or Singapore interbank offered rate, rose six points to 1.183 per cent, the highest since March last year. The three-month Sibor is typically used to price home loans.

The one-month Sibor also shot up about six points to 1.067 per cent while the overnight rate rocketed to an intraday high of 1.2 per cent after averaging between 0.25 per cent and 0.3 per cent last week.

Mr Victor Yong, United Overseas Bank's interest rate strategist, said the moves all point to a liquidity crunch that has been building up.

"Liquidity in the Singdollar funding market has come under pressure; liquidity premium is high, now that (investors) want to conserve cash - it pays not to be caught short," said Mr Yong.

He noted that the one-month Sibor's spike would cross over to the new year, which is also the "sensitive period" when companies and banks close their accounts for the year and would like their books to "look amply funded".

"You don't want to lend in these sensitive periods," he said.

Mr Yong estimates that the three-month Sibor will hit 1.40 per cent by the end of the year.

"It looks a bit stretched; signals the year-end factor could get worse plus the Fed hike," he added.

OCBC Bank economist Selena Ling said: "There probably is a combination of both global and domestic factors. There is some US dollar tightness going into the year-end... as well as market anticipation of the next US Fed rate hike in mid-December and the ongoing tapering of the Fed's balance sheet."

Ms Ling noted that interest rates have also spiked sharply in other markets like Hong Kong.

Meanwhile, the more volatile three-month swap offer rate (SOR) also rose higher, hitting 1.128 per cent on Tuesday from 1.077 per cent on Monday. But as the SOR is generally regarded as a more reactive rate, in that it reflects more the US dollar movements against the Singdollar, its gain is seen as par for the course. The three-month SOR is used mainly to price corporate loans.

The Singdollar remains strong, hovering around $1.35 and is up 6 per cent for the year.

"It's doing us a favour right now," said Mr Yong in reference to the favourable exchange rate enjoyed by online shoppers.