MONEY MARKETS-Euro money market rates stable as Draghi stays the course

October 2, 2013

LONDON, Oct 2 (Reuters) - Euro zone money market rates were steady on Wednesday, retracing an earlier rise, as the European Central Bank reassured investors it is committed to holding down interest rates.

ECB President Mario Draghi stayed the course, saying the central bank is watching moves in interest rates closely and is ready to use any policy option to temper them if needed.

The central bank was "particularly attentive" to any moves in market rates which could threaten economic recovery, he said, adding he was he was monitoring the impact of the euro on the economy but did not have a target for it.

Euro zone money market rates hit the day's high and the euro rallied to an eight-month high versus the dollar on Draghi's comments.

But while money market rates retraced that rise later in the trading session, the euro remained firm.

"On the whole his remarks were slightly less dovish perhaps than market participants had anticipated... he clearly refrained from mentioning specific measures and that on the whole was seen by market participants as slightly disappointing," Elwin de Groot, senior market economist at Rabobank.

But he said this had more of an impact on the euro than in money markets: "In the rates environment, the market understands there will be liquidity when needed."

The one-year, one-year forward Eonia rate, one of the most traded money market instruments which shows where one-year Eonia rates are seen in one-year's time, was unchanged on the day at 0.34 percent.

That was not far from recent lows hit after the U.S. Federal Reserve surprised markets by keeping its bond-buying programme intact last month.

Euribor futures were also little changed compared with before Draghi's news conference.

The December 2014 contract, the most liquid on Wednesday, was at 99.51, little changed from 99.515 before Draghi spoke. It fell to 99.485 during Draghi's news conference.

"It seems to be pretty much the same message that was conveyed last time around suggesting that there is progress on the activity side, that they are going to keep rates low for an extended period, hinting at possible LTROs (long-term refinancing operations)... but nothing in the offing just yet, as we suspected, because clearly activity has picked up," Philip Tyson, strategist at ICAP said.