By Ian Chua

LONDON (Reuters) - Ample liquidity provided by central banks helped pin down bank-to-bank funding costs with the benchmark dollar rate reaching a record low on Tuesday despite renewed worries about the banking sector.

U.S. lender CIT Group's (CIT.N) filing for bankruptcy and European Commission stress tests in the banking sector showing losses could amount to 400 billion euros ($590.9 billion) in 2009-2010 suggested it may be premature for central banks to withdraw their extraordinary support.

But for now, given abundant central bank liquidity, interbank rates for dollars extended their decline with the benchmark three-month London interbank offered rate sinking below 28 basis points for the first time.

The equivalent euro rate crept up but remained near its all-time low and the sterling rate, while still low historically, also edged up.

The Federal Reserve kicks off its two-day policy meeting on Tuesday and is widely expected to keep its benchmark rate near zero.

It is also seen maintaining its ultra-easy policy stance and not tinker with its pledge to keep interest rates low for an "extended period," given the fragile economic recovery.

"The Fed is very likely to keep everything as it is," said Christoph Rieger, strategist at Commerzbank in Frankfurt.

Some analysts expect the Bank of England to expand its quantitative easing program, while the European Central Bank was seen likely to reaffirm its liquidity support. Both announce their decisions on Thursday.

Lena Komileva, head of G7 Market Economics at Tullett Prebon said the ECB's one-year liquidity fund will not start to exit the banking system until July 2010.

"And even then the December LTRO (longer-term refinancing operation) will likely provide a generous liquidity hedge for H2 2010; we expect that the ECB will reaffirm its liquidity strategy this week," she said.

Improving global economic data, however, has fueled speculation that central banks may have to end their ultra-loose monetary policies sooner than expected.

The Reserve Bank of Australia on Tuesday raised its benchmark rate for a second month running to 3.5 percent.

Australian swaps dropped, however, after the RBA quelled expectations it will raise interest rates for the third consecutive time at its meeting in December.

"The statement suggested the RBA was open minded about skipping a hike in December, and then going in February," said Rory Robertson, interest rate strategist at Macquarie in Sydney.

Last week, Norway's central bank became the first European central bank to lift borrowing costs.

(Additional reporting by Umesh Desai in HONG KONG, editing by Mike Peacock)