MONEY MARKETS-China repo rate surges; Aussie mkts discount RBA

* China 7-day repo rate at a 19-month high

* RBA leaves rates unchanged, markets don't react

* Eurodollar futures show dollar cash tightness persisting

SINGAPORE, June 1 (Reuters) - China's benchmark 7-day repo rate surged to a 19-month high on Tuesday owing to a tightness in the cash market that traders attributed to a variety of factors, including fund-raising by some lenders and higher investments in better yielding central bank bills.

Australian markets barely moved, with bank and bill futures <0#YIB:> holding steady and pricing in little change in rates this year, after a widely expected decision to hold rates steady by the central bank.

In dollar funding markets, meanwhile, the LIBOR-OIS spread stayed wide even as LIBOR dipped a bit further and the evidence from central bank operations pointed to funding stresses at a few European borrowers.

In Australia, the central bank left its cash rate unchanged at 4.5 percent as markets had predicted. The Reserve Bank of Australia's statement said its policy was appropriate and rates close to their decade averages, while hinting it may decide to leave its rate on hold for a while.

"The statement implies not only is it appropriate for the near term, but we probably have a few months before they make a full assessment of what to do next," said Stephen Roberts, an economist at Nomura. "My forecast is still 5.0 percent towards the end of the year."

Investors have recently priced out any chance of a further rate rise this year, and only a 50-50 chance of a hike for a full 12 months to come CSRBA1Y=CSAU.

CHINA REPO

In China, the weighted average seven-day repo rate CN7DRP=CFXS, the most widely watched measure of short-term liquidity, surged on Tuesday to 3.1976 percent, up from 2.5135 percent on Monday, its highest since October 2008.

That followed a an auction of the Chinese central bank's one-year bills, at which yields unexpectedly rose for the first time since January, reflecting a funding squeeze ahead of a wave of fundraising by Chinese lenders.

The People's Bank of China auctioned 15 billion yuan ($2.2 billion) of one-year bills at a yield of 2.0096 percent, 8 basis points higher than where it had been held for more than four months. Traders cited Bank of China's (601988.SS)(3988.HK) sale of 40 billion yuan ($5.9 billion) of convertible bonds this week, subscriptions for which occur on Wednesday, as one of the main factors behind tight monetary conditions. [ID:nTOE64T01W]. The subscription money will be tied up until June 7, potentially locking up amounts several times the 40 billion yuan during that period.

Other factors for the tighter cash conditions could be a diversion of funds to central bank bills CN3MNFIX=R, where yields have been climbing, or because lenders are trying to raise mandatory capital requirements, analysts said.

"There have been rumours that one of the major banks will stop lending out money and go for PBOC bills instead," Frances Cheung, a strategist at Credit Agricole CIB, said in an interview on Reuters Insider.

"While it is still a rumour we believe there is incentive for banks in China to cut down on their lending in this time of uncertainty and buy 3-year PBOC bills where the yield is quite attractive."

Cheung also said most market participants expected the repo rate will not remain high and suspected the pressure was due to funding issues of some financial institutions meeting capital adequacy ratios.

The Chinese central bank has indeed started injecting cash into the money market. It injected 145 billion yuan last week, and with a total of 144 billion in bills and repos due to mature this week, it appears on track to inject funds again this week, having sold only 15 billion yuan in bills so far.

In Singapore, 3-month dollars SIUSDD=ABSG are quoted at an average 0.54192 percent, a blip lower than last week's peak at 0.54667 percent.

The spread between LIBOR LIBOR= and overnight-indexed swaps (OIS), the latter a measure of market expectation of policy rates, was 1 basis point tighter at 32 bps.

But the June contract for eurodollar futures, while higher at 99.405 compared to last week's low of 99.195, still prices in 3-month rates climbing to 0.595 percent. (Reporting by Vidya Ranganathan; Editing by Jan Dahinten)