Dollar Overnight Rate Soars; Fed Move Signals Crisis (Gavin Finch)

  March 17 (Bloomberg) -- The cost of borrowing in dollars overnight rose by the most in at least seven years after the Federal Reserve's emergency cut in the discount interest rate stoked concern that credit losses are deepening.

  The London interbank offered rate, or Libor, climbed 81 basis points to 3.86 percent, the British Bankers' Association said today. It was the biggest increase since at least January 2001. The comparable pound rate rose 28 basis points to 5.59 percent, the biggest gain since Dec. 31, 2007.

  In its first weekend action in three decades, the Fed cut the rate on direct loans to banks and provided $30 billion to JPMorgan Chase & Co. to help the bank finance the purchase of Bear Stearns Cos., Wall Street's fifth-largest securities firm. Money-market rates are rising as banks hoard cash after at least $195 billion in losses and writedowns since the start of 2007.

  ``Given everything that has happened over the past few days, the market is extremely jittery, with rumors abounding about other banks out there being denied funding,'' said Sean Maloney, a fixed-income strategist in London at Nomura International Plc, a unit of Japan's largest securities company.

  The Fed cut the discount interest rate on direct loans to commercial banks by a quarter of a percentage point to 3.25 percent yesterday and introduced a lending facility for primary dealers to borrow at less than the reduced rate.

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