MONEY MARKETS-Indian swaps fall after S&P, dollar costs higher

* Indian swaps fall on S&P move, RBI rate inaction view

* Dollar costs rise as LIBOR moves higher

By Umesh Desai

HONG KONG, March 19 (Reuters) - Indian swaps fell on Friday after Standard & Poor's raised the country's rating outlook to stable and as traders reversed positions on expectations the central bank is unlikely to raise rates before its April policy meeting.

The five-year overnight indexed swap rate INRAMONMI5Y= fell 5 basis points to 6.83 percent after S&P's late Thursday action, which it said was based on India's improving fiscal position and strong economic growth.

Confidence that the Reserve Bank of India (RBI) will not raise interest rates before April also prompted some traders to square paid positions.

Financial markets have priced in a 25 to 50 basis point interest rate hike at the April 20 meeting though it is expected the central bank will drain cash from the system before taking any rate action.

Kaushik Basu, chief economic adviser in the finance ministry, said late on Thursday he does not expect any policy action even though RBI deputy governor said earlier in the day the central bank was open to taking action ahead of its April review.

"The daily cost of holding on to paid positions is quite steep. There has been some cutting of paid positions," said Vineet Malik, head of interest rates at HSBC India, Mumbai.

"There is a lot of time before hikes kick in from now to April 20, which means giving away 15-20 bps of carry if you pay today," he said.

Elsewhere in the region rates were broadly higher with the markets' feathers being ruffled by talk overnight of another Federal Reserve discount rate hike.

Australian OIS rates AUDOIS rose 1-5 bps across most maturities and New Zealand rates NZDOIS were 1-2 bps firm.

A month ago, the Fed surprised the markets when it raised its discount rate -- the rate it charges on short-term loans to banks -- while emphasizing it was not ready to begin the broad tightening of credit that would put the still nascent economic recovery at risk.

The cost of borrowing dollars continued to climb, pulling further away from historic lows.

Singapore interbank 3-month dollar rates SGDDFIX=ABSG inched up to 0.42796 percent from 0.42172 percent. They hit a record low of 0.41033 last week.

This follows higher fixings in the London interbank offered rates with the three-month dollar LIBOR USD3MFSR= fixed upwards for a sixth straight session at 27.1 basis points -- the highest since Nov. 16. (Reporting by Umesh Desai; Editing by Kim Coghill)