3-Month Dollar Interbank Rates Edge Up; Euro Steady

LONDON, March 25 (Reuters) - Interbank lending rates for three-month dollar funds were indicated slightly higher on Wednesday compared with the previous session as financial markets continued to reassess the likely success of the U.S. Government's plan to clean up banks' balance sheets. The two-year U.S. dollar interest rate swap spread over comparable Treasury yields -- a closely watched gauge of investor risk aversion -- narrowed to 54 basis points from 58 basis points early Tuesday, as the two-year yields held firm a day after the sale of $40 billion of two-year notes. Three-month dollar deposit rates were indicated between 1.24 and 1.55 percent compared with 1.16 and 1.53 percent early in London on Monday. Three-month euro deposit rates were indicated in a 1.39 to 1.56 percent range versus 1.35 to 1.56 percent, while three-month sterling was in a wider 1.17-1.51 percent range compared with 1.44-1.50 percent. 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.