China's key money rate up after repo sales resume

* 7-day repo rate rises 5.30 bps to 3.5006 pct

* C.bank restarts 28-day repo auction

* No RRR cut limits sharp fall in money rates

By Chen Yixin and Jacqueline Wong

SHANGHAI, Feb 7 (Reuters) - China's key money rate
rose slightly on Tuesday as the central bank resumed selling
repos via open market operations, indicating its intention to
manage relatively ample liquidity conditions.

Dealers said ample liquidity largely offsets the move to
drain funds via the resumption of repo sales.

"We cannot feel any large impact on market funding," said a
dealer at a Chinese bank in Shenzhen. "Liquidity is still
abundant for now."

She and several dealers said the resumption of 28-day repos
was a signal that the central bank would manage liquidity at a
reasonable level.

"Seems it (central bank) just does not want too much money
in banks," the Chinese bank dealer said.

China's central bank will drain 26 billion yuan ($4.12
billion) from the money markets through 28-day bond repurchase
agreements on Tuesday, meaning it has drained at least 24 billon
yuan from the market so far this week.

Market players said the key money rate would be supported
around the 3.5 percent level on expectations of further drains
in open market operations. Dampened hopes for any cut in banks'
reserve requirement ratio (RRR) after repo auctions resumed also
limited falls in the key money rate.

The benchmark weighted-average seven-day bond repurchase
rate rose 5.30 basis points to 3.5006 percent from
3.4476 percent at the close on Monday.

The 14-day repo rate fell to 3.8076 percent
from 3.8492 percent, and the shortest overnight one-day repo
rate fell to 2.7808 percent from 2.7888 percent.

In the bond market, interest rate swaps (IRS) were little
changed on Tuesday after the central bank suspended the sale of
one-year bills, but expectations of no cut in RRR kept the rates
at high levels.

One-year IRS was at 3.19 percent, up slightly
from Monday's close of 3.16 percent, while the benchmark
five-year IRS was up at 3.28 percent from 3.18
percent.

Current Prev close Change

(pct) (bps)
7-day repo 3.5006 3.4476 + 5.30
7-day SHIBOR 3.5000 3.4425 + 5.75
Note: Repo rate is weighted average.

($1 = 6.31 Chinese yuan)