* Euroyen futures rally halts, LIBOR-TIBOR spreads widen
* Aussie interbank, bill futures stabilise after rally
* Dollar interbank rates at fresh lows
By Vidya Ranganathan
SINGAPORE, Aug 19 (Reuters) - Japanese yen interbank rates paused after a week-long rally on Wednesday, in step with other short term rates markets which had reacted this week to the deep pullback in equity markets and a reassessment by investors of growth estimates.
Most of the regional stocks, including the Shanghai market, seemed to have stabilised on Wednesday, overcoming their worries China will intervene to rein in its surging stock market.
But that sharp decline in shares had driven bonds and rates futures higher as investors pared their aggressive pricing of future monetary tightening.
Euroyen futures for instance were steady at 99.50 for a June 2010 contract, implying 3-month rates at 0.5 percent. That contract has risen from 99.43 a week ago.
"All money market futures have been rallying globally so Japan is not isolated from that," said Noriyuki Fukuda, a strategist with Morgan Stanley in Tokyo.
"Plus the BOJ governor's comments were very, very cautious on the economy and I think he is right so there's just an adjustment from some incorporation of the possibility of normalisation in rates. Some mildly bearish trades have been taken off perhaps."
Bank of Japan Governor Masaaki Shirakawa tempered the market last week, by suggesting deflation could persist for a while and raising doubts about how strongly global demand will recover.
Aussie bank bill futures were likewise listless after their rally in the past week, with the December 2010 contract steady around 94.60 or pricing in 3-month bill yields at 5.4 percent. That implied yield was 5.69 percent a week earlier.
Eurodollar futures have also been rangebound in the past two sessions after a steep rise. The March 2010 contract has rallied 40 bps in the past week, pricing in 3-month rates at 0.87 percent now. Dollar interbank rates in the 3-month tenor hit a fresh low of 0.4357 percent in Singapore.
But in Japan, whose economy is mired in deflation and expected to keep seeing prices fall for a couple of years, the rise in implied yields and interbank rates earlier in August had been at odds with fundamentals, despite the jump in the equity market to its highest levels this year.
Yen LIBOR has gradually been inching down. The 6-month LIBOR is at 0.6125 percent and has fallen 3 bps this month, after falling below corresponding domestic TIBOR in mid-July.
TIBOR meanwhile has remained sluggish, the 6-month rate unchanged at 0.66 percent through the past three weeks.
Analysts at Barclays Capital said in a note this week that TIBOR's underperformance relative to LIBOR was likely to continue.
"This situation is likely to persist for now, given the combination of rising deposits and shrinking lending volumes and thus outright yen LIBOR or TIBOR-LIBOR wideners have value," Barclays said. (Editing by Kazunori Takada)