NEW YORK (Reuters) - The U.S. Federal Reserve added a combined total of $70 billion in temporary reserves to the banking system on Tuesday, as high stress gripped short term lending markets amid financial institutions’ wariness of lending to each other.

After the operations, federal funds traded in the U.S. interbank market traded at 3.0 percent, above the 2 percent target rate the Federal Reserve sets.

The U.S. central bank said it was prepared to undertake operations later in the day, as necessary.

As the fallout from Lehman Brothers’ collapse at the weekend continued to infect financial markets, the interest rate banks demanded for lending dollars overnight to other institutions ballooned to more than five times the U.S. Federal Reserve’s 2 percent target rate.

London interbank offered rates (Libor) for overnight dollars as fixed by the British Bankers Association -- which trillions of dollars of derivative, financial and corporate contracts are referenced against -- soared to 6.43750 percent, the highest since January 2001.

The New York Fed’s combined $70 billion of temporary reserves added to the banking system so far Tuesday matched the combined amount added on Monday. These daily totals are the biggest added since September 2001, when the Fed moved to free up cash flowing to the financial system in the aftermath of the attacks on New York and Washington.

On Tuesday, the Fed added $50 billion of temporary reserves via an overnight repo, for which total bids submitted were $63.25 billion. Then the U.S. central bank injected $20 billion via a 28-day repo, for which total bids submitted were $68.20 billion.

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Early on Tuesday the New York Fed, in a statement on its Web site, said in advance that it would arrange a big overnight repurchase agreement and was ready to arrange further operations later in the day as needed.

The Web site had also preadvised that “in addition, at around 9:30 a.m. EDT the Desk will conduct its typical Tuesday morning $20 billion, 28-day single-tranche repo, settling 1-day forward.”

Other global central banks also pumped vast amounts of extra funds into world financial markets for a second day on Tuesday in a concentrated effort to contain the fallout from the crisis sweeping Wall Street’s biggest firms.

The European Central Bank injected 70 billion euros ($98.09 billion) into money markets on Tuesday, after 30 billion the day before.

In Britain, the Bank of England injected 20 billion pounds ($35.21 billion), after five billion on Monday. Demand was three times the amount of extra liquidity offered on Tuesday. contributed to this report)