hldUPDATE 1-China's banks to offer deposit certs this week -sources
* Biggest banks to launch sales of negotiable certificates of deposits
* Each bank can sell up to $823 mln of deposit certs
* Launch underlines China's intent to free interest rates market
(Adds analyst comment, background)
BEIJING, Dec 10 (Reuters) - China's biggest banks will launch the sale of negotiable certificates of deposit this week, sources with knowledge of the situation said, underlining the government's intent to reduce state control of interest rates.
Banks including the five biggest in China can offer up to 5 billion yuan ($823.41 million) worth of negotiable certificates of deposits (NCDs) each this week, the sources said.
A type of investment that gives buyers fixed interest payouts, NCDs are a step towards relaxing China's control over rates as they let buyers and sellers negotiate them themselves.
Interest rates in China are controlled by the government, which tells banks how much to pay for deposits and how much to lend, in part to protect their profit margins.
"The central bank had a meeting about NCDs this afternoon. Issuance of NCDs is imminent," one of the sources said.
Analysts have criticised China's grip over its rates as a distortion in the world's No. 2 economy that obscures the true price of credit, and encourages inefficient investment.
To reform China's economy to let market forces play a bigger role, as per plans unveiled last month that were the boldest in 30 years, the government has made the freeing up of the rates market one of its priorities.
"Symbolically, this is an important move," said Tao Wang, an economist at UBS in Hong Kong.
But given that many types of short-term borrowing and lending already occur in China's interbank market, she said the latest development only lends official endorsement to ongoing activity and will not lead to material change.
A spokesperson for the People's Bank of China declined to comment when contacted on Tuesday.
For now, NCDs in China are only to be sold and bought by those in the interbank market, such as banks and fund managers, and must not have maturities of over a year.
To further liberalise the rates market, Wang said China would have to let companies and households buy NCDs, allow NCDs to be used for long-dated deposits and finally remove the official ceiling for deposit rates.
Banks that will offer NCDs this week include the Industrial and Commercial Bank of China Ltd, Bank Of China Ltd , China Construction Bank, Agricultural Bank of China and the Bank of Communications, sources said.
Smaller banks that will follow include China Merchants Bank and Industrial Bank Co Ltd, they said.
Most of the NCDs will have three-month maturities with fixed rates that use SHIBOR - a Chinese lending rate modelled on LIBOR - as a reference rate, the sources said. But the they said the final rates of NCDs may be revised upon request by regulators.
Capital raised by NCDs will be regarded as a form of interbank financing and will not be used to calculate loan-to-deposit and reserve requirement ratios, the sources said.
The central bank had published rules for the NCD market just on Sunday, stating that each NCD issuance cannot be less than 50 million yuan among other regulations. ($1 = 6.0723 Chinese yuan)
(Reporting by Beijing Newsroom; Writing by Koh Gui Qing; Editing by Kim Coghill and Nick Macfie)