By Gabriel Wildau

SHANGHAI, Feb 19 (Reuters) - China's money market rates held

steady at low levels on Monday as holiday cash demand waned, but

rates could rise this week as the central bank may decline to

inject funds for the first time in seven months.

In the first normal trading session following the week-long

Lunar New Year holiday, the benchmark weighted-average seven-day

bond repurchase rate was at 2.92 percent at

midday, unchanged from Sunday's special session and comfortably

below the 3 percent threshold that traders regard as signifying

loose conditions.

The overnight repo rate remained depressed at

1.86 percent, flat from Sunday's level.

But the central bank on Monday declined to ask banks about

demand for reverse repos normally issued on Tuesdays.

Reverse repos have become a key tool for injecting liquidity

into the money markets since mid-2012. If no reverse repos are

issued this week, it would be the first time since June last

year.

Instead, the People's Bank of China (PBOC) on Monday asked

banks' only about demand for 28-day and 91-day forward repos,

which withdraw liquidity.

Before the holiday, the PBOC injected a record 860 billion

yuan ($138 billion) through 14-day reverse repos. With those

instruments due to mature this week and no fresh reverse repos

likely to be issued, a net withdrawal of liquidity for the week

appears nearly certain.

Market watchers were uncertain on Monday whether the PBOC's

move is a temporary response to unusually loose conditions at

the moment or whether it signals a more significant shift.

'After the holiday the central bank should remove a bit of

liquidity. But a complete halt of reverse repos is quite

strange. Right now it's hard to interpret,' said an

interest-rate analyst at a southern Chinese bank.'

The use of forward repos would be unexpected because the

PBOC could achieve a net withdrawal of liquidity simply by

issuing reverse repos in an amount less than 860 billion yuan.

If the PBOC proceeds with forward repos on Tuesday, that

would increase the size of the net withdrawal. But it is not

uncommon for authorities to survey demand for repos but decline

to issue them in the end.

In the years leading up to early 2012, the central bank

frequently used forward repos - along with central bank bills -

to withdraw yuan liquidity from the market.

But the decline in foreign exchange inflows since late 2011

has reduced the need to sterilize those inflows through bill and

forward repo issuance. The PBOC has not issued forward repos

since June 2012 and has not issued central bank bills since

December 2011.

Current Prev close Change

(pct) (bps)

7-day repo 2.9223 2.9160 + 0.63

7-day SHIBOR 2.9286 2.9860 -5.74

Note: Repo rate is weighted average.

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

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($1 = 6.2325 Chinese yuan)

(Editing by Kim Coghill)

Keywords: MARKETS CHINA BONDS/

(gabriel.wildau@thomsonreuters.com)(+86 21 6104-1783)(Reuters Messaging: gabriel.wildau.thomsonreuters.com@reuters.net)

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