Commercial banks' overnight deposits at the European Central Bank hit a new record high of €453 billion, data showed today, underscoring the ongoing fear banks have about lending to each other in the current debt crisis.

The ECB also bought up bonds of peripheral euro nationas, including Ireland and Portugal, two people with knowledge of the transactions said.

The ECB pays 0.25 per cent interest for overnight deposits, well below the 0.396 per cent banks could lend their spare cash out for on interbank markets.

Banks are currently awash with funding after they took an unprecedented €489 billion in the ECB's first three-year liquidity operation late last month.

The move was designed to underpin banks' finances and hopefully repair some of the damaged confidence in the sector, but the continuing sovereign debt crisis means many institutions still lack the trust to lend to each other and prefer to stash their money at the ECB.

The €453.181 billion in deposits today topped the previous record high of €452.034 billion reached last week and is 65 per cent of all the money the ECB is lending banks.

After the collapse of Lehman Brothers in late 2008 banks parked around one third of funds.

The ECB is worried that the euro zone could see a credit crunch and has responded by flooding the money market with cheap cash, offering banks unlimited funds in maturities ranging from one week to three years at a rate of 1.0 percent.

Emergency overnight borrowing from the ECB also remained elevated at €15.012 billion, ECB data showed.

Separately, sources said the ECB bought Irish and Portuguese government bonds. Two people with knowledge of the transactions, who declined to be identified because the trades are confidential, said the bank also purchased Spanish and Italian government bonds. A spokesman for the ECB in Frankfurt declined to comment on asset purchases.

Agencies