MONEY MARKETS-NZ swap rates show split over rate call

* New Zealand rate markets uncertain about cbank's next move

* HKMA liquidity draining moves not hurting rates yet

* Dollar funding rates ease tracking U.S.

By Umesh Desai

HONG KONG, June 10 (Reuters) - New Zealand overnight indexed swaps on Wednesday reflected divided views about whether the central bank would cut rates or pause on Thursday, while the cost of borrowing dollars in the region eased as expectations cooled that the U.S. Federal Reserve would soon tighten policy.

In Hong Kong, interbank rates declined in line with easing U.S. rate fears but there are concerns that sustained additional bill issuance by the Hong Kong Monetary Authority could cause some tightness in money markets.

The Reserve Bank of New Zealand (RBNZ) is to decide on Thursday whether to cut record low interest rates further or to pause for the first time in almost a year and there was no clear consensus as to which way the authorities would lean.

A Reuters poll of 16 analysts found seven expected the Reserve Bank of New Zealand (RBNZ) to trim its official cash rate (OCR) of 2.5 percent by another 25 basis points on June 11, while two forecast a 50 bps point cut.

Seven analysts said the RBNZ would hold off on a fresh rate move after some domestic economic indicators started to show signs of stabilisation.

Swaps reflected some of that division.

The overnight index swaps NZDOIS were bid at 2.34 percent for one-month, implying an easing of only 16 bps. The two-year interest rate swaps NZDSM3NB2Y= were down at 3.56 percent and five-year swaps NZDSM3NB5Y= were lower at 5.04 percent.

"There will be a reaction in the market which ever way the decision goes, whether they do cut or decide to pause," said Philip Borkin, ANZ-National markets economist.

He expects the central bank to hold rates steady, adding that the last time the central bank cut rates it was not reflected in lower lending rates.

"Rather than wasting your ammunition, its better to save it for another day. While there are justifications for a rate cut there are some positives out there in terms of housing data and business confidence," he said.

In Singapore, 3-month dollar funding rates SIUSDD=ABSG eased to 0.65 percent from Tuesday's 0.65333 percent. Borrowing rates have halved from their mid-March peak and have reversed some of Tuesday's rise triggered by concerns the U.S. will increase interest rates.

Friday's less-dire report on U.S. job loss in May kindled fears that the U.S. central bank might end its near-zero interest rate policy sooner than traders had thought.

But some of those expectations wore off on Tuesday with the implied chances of a rate hike as soon as November declining to 44 percent from 94 percent late Friday.

In Hong Kong, where the interbank market is entwined with that in the United States because of the currency peg, three-month Hibor HIHKD3MD= was fixed at 0.35679 percent, down from Tuesday's 0.38036 percent.

Hong Kong's money market has been awash with liquidity due to frequent intervention by the Hong Kong Monetary Authority (HKMA) in the currency market to curb the Hong Kong dollar's strength and keep it within its trading band against the U.S. dollar.

But analysts say recent moves by authorities to drain this liquidity could pressure rates.

"If you get a combination of authorities taking out money and equity outflows, it will push rates a little bit higher in Hong Kong," said Craig Chan, currency strategist with Nomura.

The HKMA is issuing additional exchange fund bills this month totalling HK$46.1 billion, a move partly aimed at mopping up excess liquidity.

Intervention by the HKMA pushed the aggregate balance -- the sum of balances on clearing accounts maintained by banks with the HKMA -- to a record high of HK$257 billion in mid-May 18. That has declined to HK$225 billion. (Editing by Neil Fullick)