China key money rate rises; c.bank drains funds

* C.bank ste to drain 27 billion yuan via open market

* Small banks and institutions still need money on mth-end

* Key 7-day rates may move around 2.5 pct in coming days

By Chen Yixin and Pete Sweeney

SHANGHAI, May 29 (Reuters) - China's key money rates rose
slightly on Tuesday after the Chinese central bank started to
drain funds via open market operations.

China's central bank will drain 50 billion yuan ($7.88
billion) from the money markets through 28-day bond repurchase
agreements on Tuesday, traders said.

When set against 23 billion yuan worth of bills and repos
set to mature Tuesday and Thursday, injecting liquidity, the
central bank is set to drain a net 27 billion yuan from the
market this week.

The People's Bank of China intends to use open market
operations to balance market funds and avoid excess liquidity,
but the impact should be limited, traders said.

Dealers said some small banks and institutions still need
money for the end of the month, which is boosting money rates.
They expect the 7-day rate to move up and down within a 2.5
percent range in the next few days.

"The rise is caused by a month-end cash demand," said a
dealer at a state-owned bank in Beijing. "Although big banks do
not lack money, some smaller banks, such as joint-stock banks
and city commercial banks, still need to borrow."

The benchmark weighted-average seven-day bond repurchase
rate rose slightly by 8.52 basis points to 2.5814
percent from Monday's close of 2.4962. It hit its lowest level
in 13 months on May 24, at 2.23 percent.

The 14-day repo rate rose slightly to 2.6659
percent at midday, while the overnight rate was up
0.72 bps to 1.9125 percent.

Interest rates swaps (IRS) were little changed, with
benchmark five-year IRS falling to 2.85 percent and
one-year IRS inching up to 2.55 percent from Monday's close 2.52
percent.

Current Prev close Change

(pct) (bps)
7-day repo 2.5814 2.4962 +8.52
7-day SHIBOR 2.5733 2.4958 +7.75
Note: Repo rate is weighted average.

($1 = 6.3345 Chinese yuan)

(Editing by Daniel Magnowski)