* 3-month dollar, sterling Libor rates mark lifetime lows
* Credit conditions continue to improve
(Updates throughout with the Libor fixings, changes blyine, dateline previous HONG KONG)
By Emelia Sithole-Matarise
LONDON, June 15 (Reuters) - Bank-to-bank dollar funding costs eased again on Monday, with the three-month rate marking a new record low as credit conditions continued to improve on cautious optimism the worst of the two-year global financial crisis may be over.
Borrowing costs have dramatically come down from lifetime peaks seen during the market panic of late 2008 after Lehman Brothers imploded as massive central bank measures have helped revive the banking sector, although they remain above historical norms.
Group of Eight finance ministers meeting at the weekend said that they have started to consider how to unwind myriad rescue measures for their economies once recovery is certain.
Still, there are doubts about the pace of the global economic recovery. International Monetary Fund chief Dominique Strauss-Kahn warned the worst of the global economic crisis was not over yet. See
The three-month dollar London interbank offered rate (Libor) was fixed at 0.61438 percent -- a lifetime low and down from Friday's 0.62438 percent. Libor is the leading global benchmark to which short-term borrowing costs are referenced.
The premium that the three-month rate trades over the Overnight Index Swap rate, or anticipated central bank rate, pinched in by one basis point to 41 basis points
"So far this year there's been a significant reduction in risk aversion, the threat of systematic collapse has gone away and there certainly is better confidence in the system relative to where were at the end of last year," said Padhraic Garvey, head of investment grade strategy at ING in Amsterdam.
"It's all part and parcel of what we are seeing with Libor coming down. We are not back to normal but we are in much better shape now," he said.
Three-month sterling Libor rates also marked a historic low at 1.25188 percent while euro rates edged down too.
For more Libor fixings see
RATE HIKE EXPECTATIONS OVERDONE
The U.S. two-year interest rate swap spread, a benchmark for short-term borrowing corporate borrowing costs was steady around 41 basis points compared with late in Europe on Friday with analysts saying expectations last week that the Federal Reserve might hike rates were overdone.
Interest rate swaps had spiralled in many markets last week after the yield on the 10-year Treasury note, a benchmark for pricing many assets, hit 4 percent on Wednesday for the first time since October.
"The pace of economic deterioration is slowing but by no means is data strong," said Standard Chartered strategist Edward Lee Wee Kok. "The feeling is that the curve may have sold off too fast, too soon."
Commercial banks' overnight deposits at the European Central Bank rose from an 8-1/2 month low to 11.333 billion euros on June 14 from 7.666 billion euros reported on Friday, which was the lowest since Sept. 25 last year.
The amounts deposited have been falling -- from a record high of 315 billion euros in January -- as tensions have eased, suggesting there is less excess cash in money markets and that banks feel more comfortable lending to their peers.
O/night deposits at ECB up from 8-1/2 mth low 3-month Euribor dips for 4th straight session (Additional reporting by Umesh Desai in Hong Kong; Editing by Victoria Main)