More signs of a thaw in credit markets, and stocks rally

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Credit market conditions are continuing to ease today, building on last week’s improvement.

Banks’ cost of borrowing from each other, as measured by benchmark Libor rates (London interbank offered rates), slid to 3.75% for one-month loans in dollars, down from 4.18% on Friday and the lowest since Sept. 29.

That rate now has fallen for six straight days.

And the Treasury today sold three-month T-bills at a yield of 1.27%, up from 0.51% a week ago and the highest since the Sept. 22 auction, when the yield was 1.44%.

The jump in T-bill yields indicates a waning appetite for super-safe securities. If banks and investors aren’t hoarding T-bills they presumably are lending more or putting their money into riskier investments.

‘There are definitely some positive signs’ of a thaw in credit, said Matthew Moore, an interest rate strategist at Banc of America Securities in New York.

The stock market likes what it sees in the credit markets, and also is taking heart from Federal Reserve Chairman Ben S. Bernanke’s endorsement of another federal fiscal stimulus plan for the economy.

The Dow Jones industrial average was up 222 points, or 2.5%, to 9,074 at about 11:20 a.m. PDT, amid a broad-based market advance.