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* Suggests Greek banks extending funding maturity

By Kirsten Donovan

LONDON, June 27 (Reuters) - An increase in borrowing of three-month funds from the European Central Bank on Thursday points to recapitalised Greek banks shifting back to the ECB for their longer-term funding after being forced to rely on domestic emergency liquidity facilities.

Banks borrowed 26.3 billion euros in three-month funds , versus a maturing amount of 18.1 billion euros . That number is not the whole story however, as the maturing operation had originally totalled 25 billion euros but 7 billion euros was repaid in May.

Analysts believe this repayment was by Greek banks no longer eligible to take part in ECB tenders.

Weekly borrowing also rose at the ECB's regular Tuesday tender, with 180 billion euros taken up compared with 167 billion the previous week and up fourfold in the last month.

"The increase...alongside the recent drop in emergency lending fits with the notion Greek banks who were shut out of the ECB are now returning," said Rabobank rate strategist Richard McGuire.

"But that does nothing to change the fact that financial institutions in Greece and indeed the wider periphery face ongoing significant restraints, and their sole lifeline is the public sector."

Wednesday's three-month tender is the first that some Greek banks have been able to take part in since being recapitalised at the end of May.

The early repayment of more than 30 billion euros of longer-term ECB financing earlier this year - including from the recent three-year funding operations - suggested some banks were no longer eligible to borrow from the central bank.

At the same time there was a sharp rise in the use of Emergency Liquidity Assistance (ELA) which analysts said pointed to Greek banks having to change their source of funding after being left undercapitalised in the wake of the country's debt swap.

Since the Greek banks have been recapitalised and are again eligible for ECB funding, take-up at the one-week operations has soared.

For example, in the last week of May, banks borrowed 51 billion euros in seven-day funds, which more than doubled to 119 billion in the first week of June, according to ECB data.

At the same time, ELA borrowing has decreased by over 60 billion euros during June.

The take-up at Wednesday's three-month operation suggests the Greek banks are now replenishing their longer-term ECB borrowing.

However, steady usage of the central bank's deposit facility indicates that overall banks are not hoarding more cash.

"Over the past few weeks we've seen a continual rise in the weekly tender and consistent with this are indications of ELA facility usage declining," said RBS rate strategist Simon Peck.

"As excess reserves remain fairly stable, it's just a change of funding source rather than an increasing need for cash."