The biggest US money market funds have slashed their exposure to Europe’s embattled banking sector to the lowest since at least 2006, underlining the spreading nervousness over exposure to the eurozone’s indebted periphery.

The 10 largest US money market funds reduced their short-term lending to European banks to just $284.6bn by the end of August, or 42.1 per cent of their total assets, Fitch Ratings said in a report published today. That’s the lowest relative exposure since at least the second half of 2006, when Fitch’s records begin, and lower than the level reached during the nadir of the financial crisis.

Since the end of June, these ‘prime’ money market funds – which act as lubricants for the global financial system and invest mostly in highly-rated debt – have cut their European banking exposure by more than $55bn in absolute terms.