* JPMorgan trading loss raises counterparty concerns * Risk seen rising on a steep Moody's cut of JPMorgan * No signs of immediate dollar-funding stress for banks By Richard Leong NEW YORK, May 11 (Reuters) - Front-month U.S. short-term interest-rate futures fell and risk premiums on interest-rate swaps grew on Friday after JPMorgan Chase & Co warned investors of a $2 billion loss on soured credit derivatives bets. On the other hand, there was no sign of immediate strain in the dollar-funding market in the wake of this stunning news late Thursday from JPMorgan, which is perceived to be the safest among large U.S. banks, analysts said. Still, this trading loss at JPMorgan raised concerns about other banks' own derivatives strategies and their exposure to JPMorgan's book of derivatives, analysts and traders said. Most Eurodollar futures for delivery through September 2004 ended 0.5 to 3.5 basis points lower for the day, while deferred contracts ended 1 basis point to 4 basis points higher. The risk premium on short-dated dollar interest-rate swaps over Treasuries rose to the highest level since late February, suggesting investors reduced their holdings of these over-the-counter contracts, which are often underwritten by banks. "People have been selling outright, based on swap-spread wideners," said Jim Lee, head of short-term markets and futures strategy at RBS Securities in Stamford, Connecticut. The yield spread on two-year interest-rate swaps over comparable Treasuries was last quoted at 34.50 basis points mid-market, 2.25 basis points wider than late on Thursday, according to Tradeweb. JPMorgan's derivatives loss occurred as investors are fretting once again about contagion on the global banking system from the debt crisis plaguing the euro zone, they said. Some analysts said the loss increased the chances that Moody's Investors Service could impose a steep downgrade of the credit ratings of JPMorgan, the biggest U.S. bank by assets. There are few details at this time on how JPMorgan's bets soured. "It validates Moody's review on these global financial institutions," said Lance Pan, director of research and strategy at Capital Advisors Group in Newton, Massachusetts. He added that part of "the rationale is that their books are 'black boxes.'" Moody's has said it will announce its rating decisions on European banks, and 17 global institutions, including JPMorgan, sometime from early May through late June. The rating agency said in February it could lower JPMorgan's long-term credit rating by up to two notches after its broad bank review. Moody's currently has a Aa3 long-term rating on JPMorgan. But JPMorgan's top-notch P-1 short-term rating from Moody's is not subject to this review. In the credit default swap market, the five-year cost to insure against JPMorgan's debt rose to 128 basis points, up from 124 basis points on Thursday and 110 basis points on Wednesday, according to data firm Markit. "It's a black eye for (JPMorgan chief) Jamie Dimon, but investors might end up punishing other banks," Capital Advisors' Pan said. The five-year CDS prices on other U.S. banks rose with JPMorgan's. For example, Bank of America's five-year CDS prices rose to 282 basis points, the highest in about a month, while Morgan Stanley's five-year CDS prices climbed to 399 basis points, the highest since Jan. 2, Markit data showed. NO IMMEDIATE FUNDING STRESS So far, news of JPMorgan's loss did not result in a spike in short-term borrowing costs for banks and Wall Street firms. Interest rates in the $1.6 trillion tri-party U.S. repurchase markets, a key source of cash for banks and Wall Street firms to finance their trades, held steady on Friday. They mostly traded in a range of 15 basis points to 17 basis points, matching Thursday's range, investors and traders said. As investors grapple with the longer-term implications of this loss on JPMorgan and the banking system, investors said JPMorgan has plenty of capital and a huge deposit base. It is not reliant on issuing commercial paper and other short-term debt to raise cash, they said. "It's not a funding issue for them. It is still a sound company," said Bret Barker, portfolio manager at TCW Group in Los Angeles, which manages $128 billion in assets. Earlier in London, Libor on three-month dollars held again at 0.46685 percent, hovering near its lowest level since mid-November. Libor is a rate benchmark for $360 trillion worth of financial products worldwide.