Libor for overnight dollar loans jumps as credit freeze deepens

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Oct 7: makers around the world may act together to cut borrowing costs.

There is “speculation the Federal Reserve could announce new measures and that we could see coordinated rate cuts,” said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. “I don’t think the cuts will happen as quickly as some people are expecting.”

The TED spread, or the difference between what banks and the Treasury pay to borrow money for three months, was at 370 basis points today, from 382 percentage points yesterday. It was at a record 391 basis points earlier.

The UK government bailed out Bradford & Bingley Plc and brokered the takeover of HBOS Plc by Lloyds TSB Group Plc in the past month, after earlier this year taking Northern Rock Plc into state ownership, as the credit-market crisis spread to Europe’s second-largest economy.

Iceland, which had its credit ratings reduced by Standard & Poor’s yesterday, today pegged its currency to a trade-weighted index as it sought to contain a crisis that’s pushed the krona down as much as 31% against the dollar in the past 30 days. The central bank also gave a 500 million-euro loan to Kaupthing Bank hf, the nation’s largest lender.

Financial institutions have incurred $585 billion in writedowns and losses since the collapse of the US subprime- mortgage market in early 2007. Governments in Europe and the US arranged rescues for six financial institutions in the past two weeks. The Tokyo three-month interbank rate held at 0.87%, the highest since last year, and the corresponding rate in Singapore rose 1 basis point to 4.24%, near the highest since January. Taiwan’s overnight lending rate increased 8 basis points to 2.11%.