The cost of borrowing dollars in Asian interbank markets fell to a three-month low on Thursday after recent poor economic data fuelled expectations the Federal Reserve would resume buying Treasuries to support liquidity.

Analysts said interbank rates were falling as asset managers sitting on cash were trying to put it in short-dated instruments such as commercial paper or lending them in money markets.

The fall in rates have also been accentuated by lower funding needs, especially those of European banks, after July's euro zone stress tests from which the sector emerged mostly unscathed.

In Singapore, interbank lending rates for 3-month dollars SIUSD3MD=ABSG fell to a three-month low of 0.43556 percent from Wednesday's 0.45333 percent. It has fallen over 4 basis points (bps) so far this week, following a 6 basis point fall in July.

These rates are sensitive to the London interbank offered rates (LIBOR) for 3-month dollars USD3MFSR=, which were fixed on Wednesday at 0.42406 percent, also a three-month low.

Two things were working in tandem: more offers and less aggressive bidding causing the LIBOR to push down and there is every chance that LIBOR could push lower and fall below 40 (bps), said Sean Keane of Triple T Consulting.

After being pinned in a narrow two basis point band for all of June and the first half of July LIBOR rates have slipped by 10 basis points over the past four weeks as concerns over the euro zone crisis receded.

The two-year U.S. swaps spread -- a gauge of financial market stress -- shrank to 16.74 bps after briefly widening on Wednesday and not far away from a near four-month low of 16 bps hit this week as two-year U.S. Treasury note yield US2YT=RR stayed just above all-time lows.

NEW ZEALAND SWAPS DROP

In New Zealand, swaps fell to more than two-month lows on Thursday after data showed the jobless rate exceeded forecasts prompting investors to cut expectations of more interest rate hikes this year.

Data showed the economy unexpectedly lost 6,000 jobs in the second quarter, sending the jobless rate up to 6.8 percent from 6.0 percent in the previous quarter. The data also came well above forecasts of 6.4 percent in a Reuters poll.[ID:nSGE6720PV].

One-year IRS rates NZDSM3NB1Y= fell by 8 basis points (bps) to 3.60 percent, a level last tested in late May while September bill futures rose 0.06 points to 96.57.

Markets now put a 64 percent chance of a rate rise on Sept. 16 CSRBNZ=CSAU, down from 76 percent before the data and traders scaled back expectations for total rate rises over the next 12 months to 72 basis points from 87 bps last week.

In India, swap rates held near 22-month peaks even after food and fuel inflation eased marginally, as it did not quell expectations of further monetary tightening.

N.R. Bhanumurthy, economist with the National Institute of Public Finance and Policy, a Delhi-based think-tank, said:I think the concern now is not really food inflation which is easing but core inflation which is shooting up and is reflecting demand-side pressures.

The situation is worrisome and I expect at least another 25 basis points hike in the offing.

The one-year OIS rate INRAMONMI1Y= was at 6.33 percent, up 4 basis points from Wednesday's close of 6.29 percent. It rose to 6.47 percent on Monday, its highest since Oct. 31, 2008.

Markets widely expect a 25-basis point hike in key rates in the central bank's mid-quarter policy review on Sept. 16, following last month's increases. (Editing by Tomasz Janowski)

India Federal reserve Fall