(Repeats item initially moved Sunday, Dec. 28)
By Emily Kaiser
WASHINGTON, Dec 29 (Reuters) - Central bankers seem to have dumped enough money on financial markets to avoid a repeat of the year-end funding scramble that caused chaos a year ago.
Next comes what may be an agonizingly long wait until companies and consumers feel like spending enough to end the recession and banks feel confident enough to resume normal lending.
It may not be evident yet in the ailing economy, but there are signs that the U.S. Federal Reserve and its partners abroad have made progress in bringing down borrowing costs, particularly on loans between banks.
Last December, the interest rate on short-term interbank loans spiked as firms frantically searched for cash to meet year-end requirements. The Federal Reserve, European Central Bank and Swiss National Bank tried to ease the strain by providing an extra $64 billion of term lending.
This year, the United States alone has offered more than 10 times that amount in year-end funding and set up unlimited foreign exchange swap lines with European central banks to make sure there are enough dollars available.
"The banking system has plenty of liquidity," economists at IHT Global Insight wrote in a note to clients. "If this strategy has worked, we should see minimal pressure on short-term rates at the end of the year."
So far so good, with just three trading days left in 2008.
The overnight London interbank offered rate -- known as Libor -- has barely budged since Dec. 10, hovering around 0.14 percent and in line with the Fed's current short-term lending rate target of zero to 0.25 percent.
Last December, the overnight Libor rate shot up about 10 percent in the final week of 2007, closing out the year just above 4.8 percent when the U.S. federal funds rate was at 4.25 percent.
ECB President Jean-Claude Trichet last week pointed to the drop in interbank lending rates as evidence of progress in easing market strains. He chided investors for underestimating the importance of steps taken by both central banks and governments.
But he also acknowledged that a lack of consumer confidence was blunting recession-fighting efforts, and increased government spending would do little to restore growth until that confidence was restored.
That may take a while.
WHICH COMES FIRST?
Figures coming this week are expected to show that global manufacturers remain firmly in recession mode, cutting production and jobs so they won't be stuck with too much inventory in a sinking economy.
Economists are looking for Friday's reports from the euro zone, Britain, China and the United States to confirm that factory activity slowed further in December after the global manufacturing index hit a record low in November.
Early reports on U.S. holiday spending don't look reassuring. Data compiled by MasterCard Advisors showed that retailers' sales fell as much as 4 percent during the holiday season, which does not bode well for fourth-quarter growth.
Without healthy consumer spending, there is little hope for a strong economic recovery. A weakening economy means more job losses and even greater consumer unease.
So how do you break the cycle?
Bob Eisenbeis, chief monetary economist at Cumberland Advisors and former director of research at the Federal Reserve Bank of Atlanta, said psychology was partly responsible for the low consumer confidence and spending.
"I have been doing a lot of work the last few days trying to compare various (U.S. economic data) series .... with previous recession periods. This one is right in the middle of the pack. It is not -- so far -- the next coming of the Great Depression," he said.
"All the rhetoric has scared people. If people just shut up a bit it would go a long way to help bring consumer confidence back," he added.
Don't expect peace and quiet any time soon.
Friday's manufacturing reports will contain two vital clues on how the economic data is likely to look in the coming weeks. Big declines in the measures of employment and new orders will signal more bad news ahead. (Editing by Dan Grebler)