* C.bank does not inject or withdraw cash in open mkt ops * Cash rates extend fall into fifth day, stocks rise * Fears of crisis subside, but conditions to stay tight By Gabriel Wildau and Lu Jianxin SHANGHAI, June 27 (Reuters) - Chinese money market rates extended their moderation into a fifth day on Thursday after the central bank did not drain any cash from the market, and stocks recovered some of their big losses from earlier in the week as investor sentiment steadied. Money market rates remain elevated and liquidity is tighter than normal, but the panic of a possible credit crunch that gripped the market last week has subsided, traders say. The People's Bank of China's (PBOC) wants to curtail the diversion of funds to a vast non-bank lending market as it seeks to shore up growth in the world's second-largest economy. Its decision not to inject or withdraw funds at its regular open market operations on Thursday signalled that while it was not looking to tighten conditions further for now, it was also holding the line on a campaign to rein in informal lending. "The market is no longer panicked, even though the PBOC refrained from injecting money via reverse repos in today's open market operations, as the central bank has pledged to support those banks which operate in line with official lines," said an Asian bank trader in Shanghai. On Tuesday the central bank sought to calm market fears of a crunch by pledging to provide emergency liquidity to any bank short of cash, and revealed that it had already done so for some institutions. "But the market expects the PBOC to stick to a relatively tight liquidity stance in the medium term, so it will be very difficult for the benchmark seven-day repo rate to return to its average levels between 3 and 4 percent seen until June," the trader said. The benchmark seven-day repo rate dropped 35 basis points to 6.93 percent on a weighted-average basis in early trade. The overnight rate was flat at 5.55 percent. The weighted-average seven-day rate peaked at a record 11.62 percent last Thursday, though some trades were seen at 25 percent and higher, as the PBOC allowed conditions to tighten. The improvement in bank funding conditions also boosted the stock market. The CSI300 index of the largest Shanghai and Shenzhen counters rose 0.8 percent in early trade, after ending steady on Wednesday. However, it is still down almost 9 percent since last Wednesday.