UPDATE 1-Chinese yields hover near six-month highs, analysts see policy shift

* Chinese government 10-year bond yields highest since January

* PBOC seen shifting from growth focus to risk management

* Chinese bond yield rise seen capped (Recasts, adds detail, analyst comment)

SHANGHAI, July 14 (Reuters) - The yield on Chinese 10-year government bonds hovered this week near its highest since January, reflecting tighter cash conditions that analysts see as a sign of a policy shift by the central bank.

Investors have also shunned bonds in favour of typically riskier stocks in recent weeks, as data has pointed to a rebound in the world’s second-largest economy after it was hit hard by the coronavirus pandemic.

Yields on China’s benchmark 10-year government bonds stood at 3.01% on Tuesday, traders said. The 10-year yield is up more than 50 basis points since April 29.

Yields have risen as the People’s Bank of China (PBOC) drained 780 billion yuan from the banking system over the previous two weeks through regular open market operations. It has injected 80 billion yuan this week.

Data on Tuesday showed that imports rose in June for the first time since the pandemic paralysed the economy this year, while exports also climbed.

Analysts said the brighter economic backdrop was prompting the central bank to pivot attention away from supporting the economy to ensuring financial risks are not building too rapidly as a result of cheap money.

“The economic fundamentals ... have allowed the PBOC to shift its focus from maintaining economic growth to containing financial risks,” said Wei He, China economist at consultancy Gavekal.

Short-dated government bonds have underperformed other maturities, with one-year government yields 110 basis points higher than at the end of April.

The volume-weighted average rate of China’s benchmark seven-day repo, a liquidity indicator, was 2.1059% on Tuesday, up from 1.1379% in March.

“Liquidity conditions are good, but the rise in rates is ominous,” said a trader at an Asian bank in Shanghai.

Still, few expect the bond rout to continue indefinitely, particularly if a recent stock market rally comes to an end.

“The tightening of the PBOC has reached a temporary end,” said He, who forecasts a cut of 20 to 30 basis points in China’s medium-term lending facility (MLF) and loan prime rates (LPR) this year. (Reporting by Andrew Galbraith; Additional reporting by Winni Zhou and Xiangming Hou; Editing by Muralikumar Anantharaman and Ana Nicolaci da Costa)