Funding through interbank markets remained scarce and expensive for euro zone banks on Tuesday as concerns about a Greek default and rising pressure on Italian bonds increased the focus on heavily exposed French institutions. The cost of insuring senior French bank debt against default rose according to data from Markit, while a media article suggesting BNP Paribas had no access to dollar funding was cited by equity and currency market participants. Money market traders said that while access to dollar loans remained difficult for French banks -- under close scrutiny owing to their large holdings of peripheral government bonds -- the situation was not one of rapid deterioration. "The stress levels have always been there and they're certainly not getting any less... but there's no sense of panic from the banks as they can fund themselves through central bank cash," a trader said. Fiscal slippages have threatened to cut off Greek aid, raising the prospect of a default by year end, while a weak Italian debt auction showed investors remain reluctant to buy new debt from the heavily-indebted state. The cost of dollar funding, measured by three-month Libor interbank rates , edged higher to 0.34711 percent and access to dollars via cross currency basis markets was close to its most expensive levels since late 2008 at -111 basis points.
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