Money market rates have dropped sharply since the beginning of the month amid increasing signs that banks are starting to lend to each other, reports the Financial Times.

Three-month sterling interbank rates fell for a 44th consecutive day today (Tuesday), while US dollar rates fell for the 22nd day in a row and euro rates dropped for the fifth successive day.

The FT reports that; "The sharp improvement in confidence comes as part of a broader rebound in the market place, with equities on the main indices up around 20 per cent from their lows of early March."

'Sterling London interbank offered rates (Libor) for three month-money fixed at 1.465 per cent on Tuesday, at 1.039 per cent for the dollar and 1.378 per cent for the euro. These rates are important as they are used as a reference to price mortgages, loans and corporate bonds.'

Don Smith, economist at inter-dealer broker Icap, told the FT: "Conditions are improving with some signs of confidence coming back to the market.

"As Libor rates have ground steadily lower, more banks have shown a willingness to lend, particularly the European banks.

"The increase in activity has been since the start of the month after a very grim late February and March, when things looked pretty dire."