China yields up on fund shortfall, cbank halts repos

* C.bank refrains from repo fund drain, first in 7 months

* Finmin deposits meet poor demand on liquidity shortfall

* Official says base of economic recovery not solid

SHANGHAI, June 23 - China's bill and bond yields rose on Tuesday as a temporary shortfall in liquidity, propelled by a resumption of stock initial public offerings, offset the impact of the central bank not draining funds in the market.

The People's Bank of China refrained from draining funds via bond repurchase agreements in its regular open market operations on Tuesday -- the first such suspension since Nov. 18 last year.

"Everybody is borrowing money now, and there wouldn't be much demand for the central bank's repos," said a dealer at the Shanghai Pudong Development Bank.

Indeed, the auction yield for 30 billion yuan ($4.4 billion) six-month deposits, sold by the central bank on Tuesday on behalf of the Ministry of Finance, rose sharply to 1.45 percent from 1.20 percent for the deposits of the same duration last auctioned on March 25.

The weighted average seven-day repo rate rose 1.67 basis points to 1.1156 percent at midday from 1.0976 percent at Monday's close.

The indicative 90-day central bank bill yield rose 1.94 bps to 1.0514 percent bid on Tuesday from 1.0320 percent on Monday, according to Reuters Reference Rates.

Last week, Guilin Sanjin Pharmaceutical Co said it would launch an $88 million equity IPO on June 29, the first such offer since last September.

Investors expect more IPO launches soon, including big ones such as from China State Construction Engineering Corp, which is expected to raise around $1 billion, and the pace of IPOs will decide movements of money market rates and the yields of short-term debt in the foreseeable future, dealers said.

In the government bond market, the five-year government bond yield added 2.64 bps to 2.4173 percent bid on Tuesday and the 15-year yield added 1.85 bps to 3.7794 percent.

But the market largely expects the medium and long end of the yield curve to see range-bound trading for now amid signs of caution on the government's side on a full economic recovery.

Central bank vice-governor Su Ning told a mergers and acquisitions conference on Tuesday that Chinese economy was headed in the right direction, but the foundations of the recovery were not yet solid.

Ying Junhui, debt market analyst at China Merchants Bank in Shenzhen, said the central bank's halt on Tuesday the drain of money via repos signalled that it would stick to a relatively loose monetary policy for now.

"The central bank suspended repo business today to send a clear sign that the government has not yet ready to tighten monetary policy, and that will cap the rises of the yields at the medium and long end of the curve," Ying said.

"But it also signals that the government is not willing to cut interest rates, and would rather choose to use quantitative tools to keep the economy moving in a designed way. That will prevent the yields from steep falls."

Following are yields based on Reuters Reference Rates (bid):

CHINA YIELD CURVE (pct)

June 23 Pvs Day Change (bps) 7-day repo 1.1156 1.0989 + 1.67 7-day SHIBOR 1.1000 1.0892 + 1.08 90-day CB bill 1.0514 1.0320 + 1.94 1-year CB bill 1.2624 1.2524 + 1.00 5-year Tsy 2.4173 2.3909 + 2.64 15-year Tsy 3.7794 3.7609 + 1.85 Note: Repo rate is weighted average.