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

Reuters

LONDON, Oct 2 (Reuters) - Euro zone money market rates weresteady on Wednesday, retracing an earlier rise, as the EuropeanCentral Bank reassured investors it is committed to holding downinterest rates.

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

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

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

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

"On the whole his remarks were slightly less dovish perhapsthan market participants had anticipated... he clearly refrainedfrom mentioning specific measures and that on the whole was seenby market participants as slightly disappointing," Elwin deGroot, senior market economist at Rabobank.

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

The one-year, one-year forward Eonia rate, one of the mosttraded money market instruments which shows where one-year Eoniarates 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. FederalReserve surprised markets by keeping its bond-buying programmeintact last month.

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

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

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

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