Forex@all

* US swap spreads widen again after sharp tightening

* Currency basis swaps stabilise after Fed restarts USD swaps

* S.Korean swap rates fall, BOK seen on hold Wednesday

By Umesh Desai

HONG KONG, May 11 (Reuters) - Dollar funding costs eased in Asia and money markets showed signs of stabilising on Tuesday on hopes the Federal Reserve's revival of currency swaps with major central banks would relieve some global strains from the euro zone debt crisis.

The European Central Bank and Swiss National Bank were among those launching the newly started swap lines to make dollars more available after a sell-off in markets last week prompted some banks to shy away from lending to European counterparts and pushed up interbank lending rates.

The ECB said on Tuesday it had lent banks $9.2 billion in an eight-day operation aimed at easing funding tesions, but the Bank of England and Swiss National Bank said they had received no bids in similar operations.

The renewed stability came even as investor doubts about the mammoth $1 trillion rescue package for weaker euro zone states sparked a drop in the euro and a retreat in stock markets after a huge relief rally on Monday.

"The actions announced yesterday should largely eliminate the extreme pressures that were building in funding markets, and LIBOR can now be expected to stablise and trade a little lower," said Sean Keane of Triple T Consulting in an note.

Earlier, money markets had made a frantic scramble to secure dollar funding in what some had felt was a return to the dark days of the troubled global funding markets in 2007 and 2008 during the subprime mortgage crisis.

Singapore interbank dollar rates fell to 0.430 percent SIUSD3MD=ABSG on Tuesday from 0.435 percent, which was the highest since mid-August 2009, tracking a slight dip in three-month LIBOR USDLIBOR to 0.42125 percent from a nine-month high of 0.42813 percent on Friday.

Monday's drop in LIBOR helped drag down the spread between LIBOR and overnight index swaps USDOIS -- one of the main gauges of financial stress during the crisis -- to 18.6 basis points from a high of 22 basis points on Friday. That spread had been as low as 6.6 basis points in March.

Two-year U.S. swap spreads -- another key gauge of financial stress -- were about 4 basis points wider at 31.5 basis points USD2YTS=TWEB after having shrunk as far as 25 basis points on Monday in the broad market rebound.

A Reuters poll on Monday showed that most primary bond dealers on Wall Street now expected the Fed to hold off from raising interest rates until 2011 while it waits to see if Europe can defuse its sovereign debt problems. [FED/R]

Cross-currency basis spreads showed the market slipping a bit after Monday's big reduction in the premium for acquiring dollars.

The one-year yen-dollar LIBOR basis swap spread JPYCBS=TTKL showed the discount for yen LIBOR slipping back to -29 bps from -27, still off the deeper discount of -38 bps seen last week.

In the euro market, the three-month basis EURCBS=ICAP slipped back to -48 bps from -40 bps the previous day but up from a low of -62 bps last week.

In South Korea, won swap rates KRWIRS fell across the curve on the eve of the central bank's policy rate review, at which it is expected to keep rates unchanged at a record low of 2 percent for the 15th consecutive month.

One-year swaps fell by 3 bps to 2.86 percent while the longer dated swaps fell by 5-6 bps flattening the curve.

"Everyone thinks there will be dovish comments from the governor and that has boosted the futures and the IRS market," said a Seoul-based strategist.

But some analysts are worried the rally in the rates market may have gone too far.

"Given that front-end rates have fallen sharply over the last few months, we see an upside risk to them should BoK's statement surprise on the hawkish side. As such, we stick to our 1s2s flattener going into the policy meeting," said Royal Bank of Scotland in a note, referring to a trade designed to benefit from a narrowing in one- and two-year rate differentials.

But the one-year cross currency basis spread -- the difference between implied rates in currency swaps KRWCRS=KMBC and local interest rate swaps KRWIRS -- widened to -159 bps from -153 bps although it is much lower than the January levels of -185 bps.

"There are some who still worry about dollar funding with all this flight to quality. The dollar-won going up, U.S. Treasuries rising and equities weakening, so people are worried. But nothing more than that," said the Seoul-based strategist.