UPDATE 2-Citi to add China bonds to its government bond indexes from Feb 2018

(Adds launch date, more details on indexes, Citi comments)

SHANGHAI, March 7 (Reuters) - Citigroup Inc will include China’s onshore bonds in its emerging markets and regional indexes starting on Feb. 1 2018, marking another victory in Beijing’s efforts to woo foreign investors to its bond market and counter capital outflows.

The announcement by Citi Fixed Income Indices came days after Bloomberg included China bonds in its global indexes offering, and could prompt other index publishers to follow suit.

Citi said China bonds would be included in its three government bond indexes – the Emerging Markets Government Bond Index (EMGBI), Asian Government Bond Index (AGBI) and the Asia Pacific Government Bond Index (APGBI).

The amount of assets tracking the Citi EMGBI, AGBI and APGBI are “around a few billion dollars”, it said, citing industry estimates.

The U.S. bank also unveiled two new government bond indexes - the WGBI-DM and the WGBI-Extended - adding China to the latter benchmark.

But it said China would not be added for now to its widely tracked World Government Bond Index (WGBI), which remains unchanged with 23 markets.

“WGBI inclusion criteria usually is subject to higher acceptance thresholds than any of our indices due to its significance to the market and to clients,” said Arom Pathammavong, Global Head of Citi Fixed Income Indices.

“In the case of China the recent opening of the bond market is still new and we expect markets participants to require time,” he added.

Industry reports estimate that between $2 trillion and $4 trillion of assets track the WGBI, Citi said.

It also introduced a WGBI-Extended index which would comprise 26 markets, adding China, South Korea, and Israel to the WGBI constituents.

“It’s a way to avoid forcing people into the China market and yet gives them an option,” said Singapore-based Mirza Baig, BNP’s head of foreign exchange and interest rate strategy, referring to the decision to keep two sets of indexes - one excluding and another including China’s bond market.

“Investors can get turned off if they are forced by index providers into newly opened markets which is why they are sensitive and slow moving.”

Citi said that it had been monitoring China’s eligibility since February 2016, when Beijing opened its interbank bond market to foreign participants, and had now decided to include China bonds in its indexes after an extensive review.

China has redoubled efforts to lure overseas investors and bump up bond market inflows after relaxing rules on foreign investment.

Last week, China opened its forex derivative market to foreign investors, giving them a way to hedge foreign exchange exposure in the country’s bond market.

Encouraging capital inflows is part of efforts by Beijing to protect the yuan, which fell 6.5 percent against the dollar last year, and staunch a heavy and prolonged slide in its foreign exchange reserves.

Authorities in recent months have announced a flurry of measures that made it harder to move funds offshore.

Some market watchers have argued the moves to tighten restrictions on outflows could dampen foreign investment in China, as companies fear they will have trouble repatriating their profits.

At the end of 2016, foreigners held about 870 billion yuan of Chinese bonds, just 1.5 percent of China’s 56.3 trillion yuan ($8.16 trillion) interbank bond market.

JPMorgan predicted last May that Chinese government bonds could receive at least $155 billion of investment flows should China’s market opening lead to their inclusion in various global indexes. (Reporting by Samuel Shen, John Ruwitch and Umesh Desai; Editing by Kim Coghill and Nick Macfie)