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Key Euribor rate steadies as ECB rate cut expectations fade

A zoom-burst image shows the illuminated euro sign in front of the headquarters of the European Central Bank (ECB) in Frankfurt April 5, 201
A zoom-burst image shows the illuminated euro sign in front of the headquarters of the European Central Bank (ECB) in Frankfurt April 5, 201

FRANKFURT (Reuters) - The key Euribor bank-to-bank lending rate was unchanged on Thursday, consolidating gains from the prior session when data showing the euro zone emerged from recession in the second quarter dented hopes for another ECB rate cut.

Stronger growth in the euro zone's two largest economies, Germany and France, helped the currency bloc emerge from its longest recession to date in the April-June period, supporting the European Central Bank's expectation for a fragile recovery.

The improved economic outlook has led to a rise in short-term money market rates, as investors see less reason for the euro zone's central bank to cut interest rates from their record low of 0.50 percent any time soon.

Money markets are pricing out expectations of another ECB rate cut.

On Thursday, the three-month Euribor rate, traditionally the main gauge of unsecured bank-to-bank lending, was unchanged at 0.226 percent.

The six-month Euribor rate dipped to 0.342 percent from 0.343 percent while the one-week rate stayed at 0.101 percent. The overnight Eonia rate rose to 0.080 percent from 0.077 percent.

Dollar-priced bank-to-bank Euribor lending rates were mixed, with three-month rates rising to 0.49833 percent from 0.49667 percent and one-week rates unchanged at 0.30333 percent.

Excess liquidity in the euro zone banking sector stood at 256 billion euros, still high enough to keep short-term market rates below the ECB's refinancing rate.

The ECB said in its July monthly bulletin that as long as excess liquidity "remains above a certain threshold, estimated to be in the range of 100 billion to 200 billion euros, short-term money market rates are expected to stay slightly above the deposit rate".

The ECB's main refi rate is at 0.5 percent and the deposit rate at zero.

Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT (4:00 EDT).

(Reporting by Frankfurt newsroom; Editing by Catherine Evans)

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