* C.bank in second-largest single-day injection ever
* Traders report strongly improved liquidity
* But impact on rates is muted; overnight falls most
* No RRR cut seen before Party Congress on Nov. 8
By Gabriel Wildau
SHANGHAI, Oct 9 (Reuters) - Liquidity eased slightly inChina's money markets on Tuesday following a large cashinjection by the central bank, but traders remained cautiousabout lending at tenors longer than one day.
The central bank injected 265 billion yuan ($42.15 billion)into the country's money markets via reverse bond repurchaseagreements on Tuesday morning, the second-largest grossinjection on record, just shy of the 290 billion yuan injectedon Sept 25.
"The central bank seems to be scrambling to bring moneymarket rates down in order to support growth," said DariuszKowalczyk, senior economist at Credit Agricole CIB.
Traders widely reported that banks were lending more freelyon Tuesday than Monday, but the effect on rates was muted.
"Things started to loosen immediately today. Yesterday itwas quite tight. But today, as soon as the information on thereverse repos came out, the market freed up a lot," said atrader at a large state-owned bank in Beijing.
The largest fall occurred in the overnight market, where theweighted-average repo rate
dropped 36.02 basispoints to 3.3734 percent at midday.
But traders remained cautious about longer tenors. Afterrising sharply 79 basis points on Monday, the benchmarkseven-day repo
edged down 6.82 basis points to3.7586 percent at midday.
"The maturing volume on Thursday is pretty large so peoplewill be cautious. The longer rates can't fall as fast asovernight," the Beijing trader added.
Maturing bills and repos are due to withdraw a net 160billion yuan from the market this week, meaning that Tuesday'saction guarantees a net injection of at least 105 billion thisweek.
It will mark the third straight week of net fund injections,following the record 365 billion yuan net injection in the lastweek before markets closed for the October holiday, when themarket suffered from a severe holiday-related cash squeeze.
Interest rates sometimes fail to fully reflect theavailability of funding in China's money markets. A few largestate-owned banks are the main net lenders to the market. Evenwhen these banks offer up large volumes of funds for lending,they can sometimes dictate a high price.
Tuesday's fund injection also further strengthened marketexpectations that the PBOC is unlikely to cut banks' requiredreserve ratio before the Communist Party Congress opens on Nov.8 and will continue to rely on reverse repurchase agreements tomaintain market liquidity.
Current Prev close Change(pct) (bps)7-day repo3.7586 3.8268 - 6.827-day SHIBOR3.7508 3.8125 - 6.17
Note: Repo rate is weighted average.
To see SHIBOR rates, please click
To see stories on China's debt issue
For prices for central bank bills, treasury bonds and
sovereign bonds, please click,
To see a general guide to contributed price data,
news and analysis, please click
($1 = 6.2872 Chinese yuan)
(Additional reporting by Shanghai Newsroom; Editing by EricMeijer)
Keywords: MARKETS CHINA BONDS/