FRANKFURT, June 24: The European Central Bank pumped an extra 35 billion euros ($54.34 billion) into money markets on Tuesday as it moved to calm the fears of banks about funding over the crucial half-year period.

It is the second time in just over two months the ECB has put in such a large amount in a bid to oil money market sticking points and encourage confidence back into wary banks still licking their subprime wounds.

The ECB lent banks 208 billion euros in funds that have to be repaid within a week, 35 billion more than its benchmark allotment of 173 billion.

The ECB vowed earlier in the month to step in and resolve any funding problems leading up to the end of the first half as it became clear jitters were once again building in credit markets.

The world’s financial system is still struggling to overcome the US subprime mortgage turmoil and subsequent credit crisis.

Economists had expected rates to stay on hold for months longer, but ECB President Jean-Claude Trichet shocked markets on June 5, by saying the the Governing Council was in a state of ‘heightened alertness’.

Financial markets are pricing in about a 90 percent chance of a move to 4.25 per cent on July 3 and investors generally expect rates to hit 4.5pc by the end of the year. The three-month euro London interbank offered rate (Libor) hit its highest rate since December 2000 earlier in June and its European counterpart, Euribor reached a seven-year peak.

The ECB is also due to announce an auction of longer term 3-month funds later on Tuesday.—Reuters