FRANKFURT, Dec 7 (Reuters) - Key Euribor bank-to-bank

lending rates fell on Friday, a day after European Central Bank

President Mario Draghi said the bank discussed cutting interest

rates at its December meeting but in the end decided to leave

them unchanged at 0.75 percent.

Draghi said on Thursday there had been 'a wide discussion'

on rate cuts during the Governing Council meeting, which fuelled

expectation that the ECB was ready to lower rates further in the

coming months.

The central bank also announced a six-month extension to its

full-allotment policy in all liquidity operations.

Bank-to-bank lending rates have fallen sharply since

November last year when ECB plans emerged to flood the banking

system with ultra-cheap, three-year cash.

But the impact of the excess liquidity has now been largely

priced in. Uncertainty about whether the ECB will cut official

interest rates further, helped market rates find support over

recent weeks.

On Friday, three-month Euribor rates,

traditionally the main gauge of unsecured bank-to-bank lending,

fell to 0.187 percent from 0.190 percent.

The six-month rate eased to 0.330 percent from 0.339 percent

while the one-week rate bucked the trend and

ticked up to 0.077 percent from 0.076 percent. The overnight

Eonia rate rose to 0.072 percent from 0.069 percent.

Dollar-priced bank-to-bank Euribor lending rates also fell, with three-month rates

falling to 0.57231 percent from 0.57462 percent and one-week

rates down at 0.34692 percent from 0.34846 percent in the

previous session.

The ECB's decision in July to stop paying interest on

overnight deposits paved the way for further declines in

euro-denominated rates by removing the 0.25 percent floor for

the money market.

The amount of excess cash in the euro zone banking system is

still extremely high at 614 billion euros, according to Reuters

calculations.

With that figure set to remain high for the foreseeable

future, money market experts have focused on whether the ECB

could copy Denmark's example and start charging banks to deposit

cash overnight.

Policymakers showed initial interest in the idea but some

have since said such a move could be problematic.

Asked about the idea on Thursday, Draghi said: 'There is

nothing new to report ... we are operationally ready, but the

discussions in this respect did not go into any depth.'

'We briefly touched upon the complexities that such measure

would involve and on possible unintended consequences. But we

did not elaborate on this any further,' he added.

Euribor rates are fixed daily by the Banking Federation of

the European Union (FBE) shortly after 0900 GMT.

* For a table of the latest Euribor fixings for terms of one

week to one year, double click on

* For a table of the previous day's fixings of EONIA swap

rates, which show market expectations for future overnight

lending rates, double click on

* For graphs of historic Euribor and EONIA swap rates, right

click on the links in angle brackets below, and select 'Related

Graph'

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($1 = 0.7867 euros)

(Reporting by Frankfurt newsroom; Editing by Catherine Evans)

Keywords: MARKETS EURIBOR/

(frankfurt.newsroom@reuters.com)(+49 69 7565 1209)

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