MONEY MARKETS-China rates up before large IPO, dlr costs fall

* Chinese money market rates up ahead of $6 bln IPO

* Dollar costs fall in Asia after CIT rescue

* Chinese short term rates seen firm

By Umesh Desai

HONG KONG, July 20 (Reuters) - China's short term bond yields and money market rates rose on Monday ahead of the world's largest IPO, while the cost of borrowing dollars in Asia fell after CIT Group Inc. clinched a last minute rescue.

China State Construction Engineering Corp will launch the world's largest IPO so far this year, with book-building starting on Tuesday for the $6 billion offering.

But some analysts say short term rates would remain firm even after the offering amid growing uneasiness in some circles in Beijing about runaway bank lending and excessive liquidity.

"Clearly they recognise the unwelcome consequences of the fiscal stimulus," said Zhiming Zhang, Hong Kong based analyst with HSBC.

But he did not expect any dramatic change in the monetary policy via increase in official interest rate and reserve ratios.

"What they are doing is fine tuning via comments from officials, by watching loan growth and increased bill issuance," he said.

Yin Zhongqing, a deputy director with the Finance and Economics Committee of China's National People's Congress said China's monetary policy is "too relaxed" and is in need of change.[ID:nPEK39242]

The one-year government bond yield rose to 1.465 from Friday's 1.3555 percent and the weighted average 7-day repo rate climbed to 1.7291 percent from 1.5625 percent.

Interest rate swaps remained volatile , and one-year yuan swap over the 7-day repo moved between 1.93 and 2.11 percent. That rate has risen over 50 bps since the end of June.

In Hong Kong money markets also tightened ahead of a popular share offering.

The 3-month rate rose a basis point to 0.07 percent. It has gained 5 bps over last seven days.

BBMG's $763 million IPO, the second-largest in the territory so far this year, opened for public subscriptions on Friday. The international tranche for institutions has been about 30 times subscribed, according to media reports.

The cost of borrowing dollars in Asia fell further on Monday tracking the decline in three-month London interbank offered rate (Libor) for dollars which set a record low on Friday.

In Singapore, the cost of 3-month dollars fell to 0.51071 percent from 0.51143 percent.

Sentiment was also helped after CIT Group Inc clinched a last-minute $3 billion rescue by a group of bondholders and probably escaped bankruptcy. CIT lends to nearly one million small and mid-sized U.S. businesses. [ID:nN19323064] (Editing by Tomasz Janowski)