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UPDATE 1-China's foreign debt rises 7.5 pct in Q3 to $1.68 trln - regulator

* Outstanding foreign debt at $1.68 trln at end-Sept -SAFE

* Q3 debt growth slows to 7.5 pct from 8.7 pct in Q2 (Adds details)

BEIJING, Dec 28 (Reuters) - China's outstanding foreign debt rose 7.5 percent in the third quarter to $1.68 trillion, the foreign exchange regulator said on Thursday, slowing from a 8.7 percent rise in the second quarter.

The rise in foreign debt was mainly driven by debt securities, as more foreign institutions entered China's debt market, and also by trade credit and pre-payments, the State Administration of Foreign Exchange (SAFE) said.

"Demand for cross-border financing in the real economy has been gradually rising as the two-way fluctuations of the yuan exchange rate increase significantly while the exchange rate is expected to be generally stable," it said.

Some analysts believe China's capital controls may have forced firms to roll over their dollar debt, and Chinese authorities may encourage more dollar borrowings to shore up the yuan.

Outstanding short-term foreign debt stood at $1.09 trillion at the end of September, accounting for 65 percent of total debt, the regulator said.

Yuan-denominated foreign debt made up for 33 percent of total foreign debt at the end of September, it added. (Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Richard Borsuk)