The European Central Bank yesterday made unexpectedly big special loans to help banks pay off record one-year borrowing as nervous markets waited to see how healthy the banking sector really is.

Eurozone banks asked for €111.2 billion in six-day loans, the ECB said, demonstrating strong demand just before record €442 billion in one-year loans came due.

A total of 78 banks asked for funds, the ECB said, a day after 171 banks borrowed €131.9 billion for three months in an operation that initially eased market worries over a credit squeeze that might hamper a eurozone economic recovery.

Attention will now turn to the release later this month of bank stress tests designed to determine if they can withstand exceptional shocks like defaults by major borrowers.

The Central Bank is slowly weaning commercial banks away from what could become a dependence on cheap funds by eliminating long-term loans of up to one year in favour of three-month operations.

That will force banks to refinance themselves more often and leaves them more exposed to changes in ECB rates, encouraging them to look at alternative sources of funds such as interbank markets.

But the ECB has nonetheless stretched out a safety net for commercial banks, by announcing it will make three more three-month loans of unlimited amounts of funds in July, August and September that should tide banks over until the end of the year.