* Sterling interbank market activity light
* Markets digest UK bank measures, guarantees, schemes
* US markets closed for public holiday
(Adds fresh quotes, changes byline and dateline, previous Singapore)
By Jamie McGeever
LONDON, Jan 19 (Reuters) - Sterling money markets were largely frozen on Monday as dealers digested the UK government's latest attempts to revive lending among banks whose share prices have sunk on renewed concern over losses and writedowns.
In its second bank rescue package the Treasury unveiled an asset insurance scheme and said the Bank of England will set up an Asset Purchase Facility to buy private sector assets worth up to 50 billion pounds, freeing up money for banks to lend.
Some analysts said the BoE scheme was a large step on the path toward "quantitative easing", effectively printing money.
The government will also increase its stake in Royal Bank of Scotland -- but won't inject more capital -- after the bank announced losses last year of over 20 billion pounds, the largest ever UK corporate loss.
Deepening concern over banks' exposure to "toxic" assets such as mortgage-backed securities, further losses and writedowns sent Barclays shares down 45 percent last week. RBS shares fell as much as 30 percent on Monday.
Sterling interbank lending rates inched up on Monday as dealers digested the measures. Dollar rates also inched up but in extremely light volume, owing to U.S. markets being closed for the Martin Luther King Day holiday.
"There are still lenders out there but the names they're prepared to do business with are limited, to say the least," said a sterling money market broker in London.
"Activity is very light. Anything past three months is rare."
Vicky Redwood, economist at Capital Economics in London, welcomed the Treasury's steps but warned that more may be needed to get banks lending not only to each other but to businesses, consumers and mortgage borrowers.
"These are not magic solutions. They will take time to get off the ground," Redwood said.
"Banks will still face significant recession-related losses as unemployment and business failures rise. As the recession deepens, banks may still want to simply sit on any cash freed up by these measures rather than lending it on to potentially risky borrowers," she said.
ECB DEPOSITS UP
Three-month sterling deposit rates were indicated between 1.82 and 2.07 percent on Monday morning trade in London versus 1.30-2.08 percent the same time on Friday.
The premium for these rates over anticipated official BoE policy rates in three months, as measured by Overnight Index Swaps, was around 135 basis points.
The sterling broker noted that the forward spread for March was 75 basis points, which means the market is expecting the spread to narrow by a hefty 60 basis points in two months, a degree of improvement he reckons is highly unlikely.
Dollar deposit rates were indicated between 1.01 and 1.30 percent compared with a 1.03-1.20 percent range early on Friday and three-month euro deposit rates were indicated between 2.10 and 2.43 percent compared with 2.22 and 2.45 percent early on Friday, Reuters charts showed.
Barclays shares lost 45 percent of their value last week and U.S. banking giants Bank of America and Citigroup announced large fourth quarter losses.
Interbank deposit rates are only indicative prices of where banks are lending to each other, which institutions use as a base to set their own lending rates.
The British Bankers' Association will report its daily fixings of London interbank offered rates (Libor) between 1100 and 1200 GMT.
Banks' reluctance to lend wasn't confined to the UK. Commercial banks' overnight deposits at the European Central Bank deposited 281.394 billion euros at the ECB as of Jan. 16, up slightly from 280.208 billion euros the previous day.
Overnight loans currently charge an interest rate of 3.0 percent and deposits pay 2.0 percent, compared with the ECB's currency main interest rate of 2.5 percent. The ECB cut it to 2 percent on Thursday and the change will come into force on Jan. 21.
The bank has also said it will make borrowing and depositing cash overnight less attractive in another attempt to kick-start the bank-to-bank lending market.
(Reporting by Jamie McGeever; Editing by Ruth Pitchford)