FRANKFURT, Oct 9, 2008 (AFP) - The European Central Bank has changed two more key interest rates following a cut to its main lending rate, in a move which an analyst said on Thursday should help stabilise stressed money markets.

At the core of the financial crisis is a freeze in lending by banks to each other, and to businesses and consumers.

Money is not circulating, and even massive summs injected by central banks from day to day have done little more than keep the system ticking over.

The latest changes, analysts say, are intended to get the pump moving by reducing the cost of borrowing money and by increasing the dynamics of lending and depositing by commercial banks.

On Wednesday, the ECB in concerted action with many central banks, lowered its lending rate by a half a percentage point to 3.75 percent.

It then announced changes in the way its sets a higher rate at which banks can always borrow money, and a lower deposit rate at which it pays interest on money placed with it by commercial banks.

The key change is that it is now cheaper for commercial banks to borrow ECB funds on a standing basis, but that the ECB's deposit rate has in fact remained steady whereas in normal procedures it would have fallen in line with the rate cut announced on Wednesday.

From Thursday, the ECB narrowed the band around its new 3.75-percent benchmark rate by lowering its marginal lending facility, the rate at which banks can always borrow money, to 4.25 percent, it said in a statement.

But the bank, instead of allowing its deposit rate, the rate which it pays on money parked with it by banks, to fall as it would normally have done, held it at 3.25 percent.

Both rates had previously stood at one percentage point on either side of the main rate.

By narrowing the band, the ECB sought 'to steer liquidity towards balanced conditions' by trying to keep short-term rates closer to its benchmark level.

Commerzbank analyst Michael Schubert said that the decision, along with another by the bank to apply a fixed rate to regular loans to commercial banks, 'will further stabilise short-term rates.'

Rates on interbank money markets used by commercial banks to borrow from each other have been extremely volatile amidst the international financial crisis.

For example, the shortage of funds has pushed up money market rates to record levels. But another much-watched figure, the yield, or interest paid, on US Treasury bonds, has fallen dramatically.

The normal gap between these two market rates has widened abnormally, adding to a starvation of funds to borrowers for normal business.

As a result, daily use of the ECB facilities has been unusually high, because 'quite a few market participants preferred to use these safe facilities, although the interest rates applied to them are unfavourable compared with market rates,' Schubert said.

By narrowing the rate band, the ECB was 'increasing the incentive to use them instead of being active on the money market,' he added.

The measures would remain in place as long as needed, the ECB said, and at least until January 20, 2009.