The ECB said it had awarded 99 billion euros in 14-day fund the lowest accepted rate, or marginal rate, of 4.29 percent and a weighted average rate of 4.32 percent.

Money market dealers polled by Reuters on Monday had predicted that the marginal rate would be 4.28 percent this week, with a weighted average rate of 4.32 percent.

Tuesday's allotment effectively pumped 31 billion euros in fresh funds into the market as 68 billion euros in refinance agreements expire on Wednesday.

The euro showed little reaction to the tender announcement and remained steady near $0.94.

"It's a bit higher than expected but I wouldn't exaggerate the significance of the rate. We'll have to see how things go on, what the outcome of next week's auction will be," said Ulrike Kastens, economist at HSBC Trinkaus in Duesseldorf. The ECB has switched to regular variable rate auctions from a fixed rate system to remove chronic overbidding that had marred the smooth distribution of funds across the euro area. Under the new regime, banks state an interest rate at which they are prepared to borrow money from the ECB rather than having a fixed rate set for them.

It means the ECB cedes some control over its most important interest rate - the rate at which banks obtain their funds each week.

Under the previous system, the ECB fixed its main refinancing rate, most recently at 4.25 percent following a half-point interest rate rise on June 8. Now that rate will partly be determined by banks' bids, although the ECB has set a floor by setting a minimum bidding rate at 4.25 percent.

The ECB has repeatedly stressed that the variable rates have no monetary policy significance and relate purely to money market technicalities. The only rate relevant to its policy intentions is its minimum bidding rate, the ECB has said.

But any big divergence of accepted rates from the minimum bid rate is likely to spark speculation the ECB is sanctioning a rise in borrowing costs for strategic reasons, for example, to stem inflationary pressures in the euro zone.

While euro zone economists will keep on monitoring tender rates, money market dealers also focus on allocation volumes, which reflect ECB's assessment of money market liquidity conditions.

The ECB is expected to keep monetary policy on hold until atleast September after its last tightening was a surprisingly large 50 basis points.