* U.S. T-bill rates higher as investors prepare for supply

Currencies

* U.S. Treasury to sell $22bln of 4-wk and cash mgmt bills

* new rules for money market funds to shorten duration

* Benchmark euro Libor rates at record low, ECB eyed

(Updates, changes byline, changes dateline prev London)

NEW YORK, Feb 1 (Reuters) – Rates on short-dated U.S.Treasury securities rose on Monday ahead of sales of new billsscheduled for later in the week.

One-month US1MT=RR and three-month US3MT=RR T-billyields edged up to 0.07 percent and 0.1 percent, respectively,as investors prepared for auctions of $22 billion worth offour-week and 21-day bills set for Tuesday and Wednesday. TheTreasury Department on Monday auctioned a total of $49 billionof three-month and six-month bills.

“The Treasury refunding is going to drive the market forthe next couple of days, said Cie-Jai Brown, an analyst atJPMorgan Securities in new York.

Investors were also keeping an eye on new rules governingmoney market funds due out in final form from the Securitiesand Exchange Commission this week. The SEC announced onWednesday it was adopting the new rules, which call forstricter liquidity standards and tighter limits on the lengthof investments money markets can make. Bankers said the ruleswould make money market funds’ investment operations moretransparent but could also restrict the extension of credit tobanks.

“Portfolio managers are reallocating their portfolios andshortening the durations they would extend to bank credits,”Brown said. he added that the new rules appeared to be causinga slight steepening in the Libor.

Analysts were watching for potential impacts on short-termrates of brighter economic data. The Institute for SupplyManagement on Monday said its index of factory activity had hitits highest level since 2004. [id:nN01186177]

“If we continue to see data like this, then the very frontend of the curve is going to be very aggressively sold,” saidChristian Cooper, an interest-rate strategist at RBC CapitalMarkets in new York. “Otherwise, money market investors who arelocking up a month or three months worth of cash in ashort-dated instrument would miss out on returns.”

in the UK, implied sterling interest rates inched lower onMonday after data confirmed money supply shrank in Decemberdespite the Bank of England pumping some 200 billion poundsinto the financial system to stave off recession.

The data, which also showed mortgage approvals for housepurchase unexpectedly fell last month, comes ahead of the Bankof England’s policy decision later this week widely expected toannounce a pause in its quantitative easing programme.

The BoE’s preferred M4 money supply measure — excludingintermediate and other financial corporations — fell 0.5percent in December while headline M4 fell at its fastestmonthly pace on record. [ID:nLDE6100S8]

Short sterling interest rate futures <0#FSS:> were up twoto four basis points across the June-Dec. 2010 strip withanalysts saying caution before the BoE meeting on Thursdaycapped further gains.

Three-month sterling London interbank offered ratesGBP3MFSR= nudged lower, fixing at 0.61563 percent from0.61625 percent on Friday. Analysts expect it to remain subduedbefore the monetary policy committee decision on Thursday.

ECB LIQUIDITY MEASURES EYED

“The MPC has admitted that there is little it can do toimprove the flow of lending through the banking system,”Barclays Capital analysts said in a note.

“Instead, it hopes that higher asset prices and lowerlong-term interest rates generated by QE will provide a fillipto demand, and that this will show up in improved money andcredit flows. there is little evidence yet that this ishappening to any appreciable degree.”

in other currencies on money markets, euro LiborEUR3MFSR= set another all-time low at 0.60688 percent from0.60875 percent on Friday while equivalent dollar Libor wasunchanged at 0.24906 percent USD3MFSR=.

see [ID:nEAP000028] for latest Libor fixings.

To soften the impact of the financial crisis, central banksaround the world have cut interest rates and flushed marketswith extra liquidity, keeping downward pressure on bank-to-banklending rates.

However, there is growing concern that such measures maynot reach consumers as banks tighten credit rules.

ECB data on broad supply of money in the euro zone economyshowed last week that lending to firms fell 2.3 percent inDecember from the same month a year earlier. [ID:nLDE60S0XT]

ECB policymakers, who also meet on Thursday, have hinted inrecent days that they are likely to take a decision on whatsupport measures to keep in place going forward.

Analysts say the fallout from the fiscal woes plaguingGreece were likely to make central bank even more careful inwithdrawing liquidity, which should help keep interbank ratespinned down.

(Additional reporting by Emelia Sithole-MatariseEditing by Andrew Hay)

MONEY MARKETS-US short-term rates edge up on supply