UPDATE 1-Hong Kong's central bank sells HK$1.55 bln after HKD rises to trading limit

(Adds HKMA statement, context, recasts)

HONG KONG, April 21 (Reuters) - The Hong Kong Monetary Authority (HKMA) sold HK$1.55 billion ($200.01 million) of Hong Kong dollars on Tuesday, after the currency hit the strong side of its 7.75 to 7.85 per U.S. dollar trading band for the first time since December 2015.

The HKMA took action in accordance with the arrangement of HKD’s peg to the U.S. Dollar, the central bank said in a press release on Tuesday evening. The HKMA last intervened in March 2019 when the currency breached the weak side of the band, and it last sold Hong Kong dollars in October 2015.

The currency strengthened in recent weeks as local interest rates widened their lead over U.S. ones and amid solid demand for local stocks, attracting capital to the city, according to analysts.

Eddie Yue, chief executive of the HKMA, said increases in fiscal spending will keep Hong Kong dollar demand elevated. The Hong Kong government is ramping up spending to cushion the economic shock of the coronavirus outbreak.

“As risks posed by the coronavirus on global economy are still evolving, financial markets will continue to see considerable volatility,” Yue said in the press release.

“The HKMA will continue to closely monitor the market situation and ensure Hong Kong’s money and foreign exchange markets operate smoothly.”

The HKMA has tried to release more cash by issuing fewer bills, cutting banks’ required reserves, and indicating it will shore up dollars through the U.S. Federal Reserve’s repo facility.

The aggregate balance, a key gauge of liquidity in the banking system, stood at HK$54.1 billion on April 21. It will go up to HK$60.6 billion on Thursday following the intervention and downsized bills issuance, said the HKMA.

$1=7.7496 Hong Kong dollars Reporting by Noah Sin, Donny Kwok and Twinnie Siu; Editing by Clarence Fernandez and Louise Heavens