By Gavin Finch and David Yong
     Sept. 30 (Bloomberg) -- The cost of borrowing in dollars overnight surged the most on record after the U.S. Congress rejected a $700 billion bank rescue plan, heightening concern more institutions will fail.
     The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers'
Association said. The euro interbank offered rate, or Euribor, for one-month loans climbed to record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record. Rates in Asia also rose.
     ``The money markets have completely broken down, with no trading taking place at all,'' said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort in Frankfurt. ``There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''     Credit markets have seized up, tipping banks toward insolvency and forcing U.S. and European governments to rescue five banks in the past two days, including Dexia SA, the world's biggest lender to local governments, and Wachovia Corp. Money- market rates climbed even after the Federal Reserve yesterday more than doubled the size of its dollar-swap line with foreign central banks to $620 billion. Banks borrowed dollars from the ECB at almost six times the Fed's benchmark interest rate today.

                           Libor-OIS Spread

     The Libor-OIS spread, the difference between the three- month dollar rate and the overnight indexed swap rate, widened to 246 basis points, showing cash scarcity is at a record.
     The difference between what banks and the U.S. Treasury pay to borrow money for three months, the so-called TED spread, was at 338 basis points today after breaching 350 basis points for the first time yesterday. The spread was at 110 basis points a month ago.
     ``We can be sure that funding pressures are not going to ease while there is so much uncertainty,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``Cash is going to be at a premium. There's really no end in sight.''