FRANKFURT, Oct 29 (Reuters) - Demand for euros in the European Central Bank's first ever no-limits, 3-month tender remained subdued on Wednesday as banks held fire, betting the rate of interest would be more favourable by the end of next week.

The ECB said it was lending banks 103.1 billion euros in three-month funds at a fixed interest rate of 3.75 percent, but with the ECB heavily expected to cut rates to 3.25 percent next Thursday traders said many staying on the sidelines.

"One-hundred billion is rather low given that it is an opportunity to do unlimited 3-month money," said one London-based trader.

"I think the motivation will be to go into the weekly tender next week at 3.75 percent then the week after use the new refi rate of 3.25, and perhaps in a month or so's time 2.75."

All 81 economists polled by Reuters over the last few days expect the ECB to cut rates next week, with the vast majority tipping another 50 basis point move from ECB President Jean-Claude Trichet and his colleagues. For story please double click

The interest rate in the ECB's short term 1-week tenders is always set at the bank's headline interest rate, but in its longer term tenders like this it sets them on a case by case basis.

The decision to set a rate as low as the current 3.75 percent main rate this time around was a surprise to many money market watchers as banks usually have to pay a premium for the priviledge of borrowing over a longer period.

"People point out that there is plenty of opportunity to grab money at operations over the end of the year and you didn't have to rush into today's operation," added the trader.

The ECB said 223 banks received funds in total. The loans start on Oct. 30 and have to be paid back on Jan. 29 2009.

The recent intensification of the financial crisis has seen the Frankfurt-based ECB overhaul its lending rules.

There is now no limit to the amount commercial banks can borrow in euro and dollar tenders and the operations now have fixed interest rates compared with the previous system of top-bid-down auctions for a set amount of funds.

For full details of the tender, please double click on .

(Reporting by Marc Jones; editing by Stephen Nisbet) Keywords: ECB/LONGREFI tf.TFN-Europe_newsdesk@thomsonreuters.com jlw

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