* Aussie swaps rise as housing sector picks up
* Dollar funding costs rise, QE end may be near
* Malaysian swaps inch higher after U.S. data
By Umesh Desai
HONG KONG, Aug 10 (Reuters) - Australian swaps rose and futures dropped amid signs the housing market was gaining momentum which raised expectations the central bank would soon start increasing interest rates.
Dollar funding costs inched up in Asia ahead of a two-day policy meeting by the Federal Reserve, which begins on Tuesday, over concerns the U.S. central bank could comment on when it may start exiting its credit easing programme.
"They are pricing in some sort of an end to the QE," said Suresh Ramanathan, strategist with CIMB Investment Bank referring to the Fed's use of quantitative easing (QE) to stimulate economic activity.
"If they indicate they will not extend the treasury purchase after September you will rapidly see short term interest rates and term structure gradually moving up," he said.
Dollar funding costs edged up marginally to reflect those concerns with the 3-month rates in Singapore up to 0.47667 percent from 0.47571 percent, even though London interbank offered rates dropped to new lows on Friday.
Last week, interbank lending rates fell after the Bank of England surprised markets with a 50 billion pound increase in its quantitative easing program.
Although the Bank of England expanded its QE plan to 175 billion pounds, comments from Fed officials suggest the U.S. central bank's $300 billion programme to buy longer-dated Treasuries is likely to expire on schedule in September, analysts say.
Interest rate swaps (IRS) jumped and futures fell in Australia after data showed demand for home loans climbed for the ninth straight month in June.
"The data keeps expectations of a rate hike before the year end very much alive," said Adam Carr, senior economist at ICAP.
"This is a pretty good set of numbers and shows that the demand side of the housing market is pretty strong," he said.
The December 2009 3-month Aussie bank bill futures contract fell 13 basis points (bps) to 96.05, implying a yield of 3.95 percent. That contract has fallen from 96.89 on July 14 and its yield compares with a cash bond 3-month yield of 3.318 percent.
Last week, the Reserve Bank of Australia (RBA) shifted away from its easing bias and raised its growth forecasts, making clear rates could be expected to rise to normal levels over time.
The RBA's cash rate is at a record low of 3 percent, following cuts totaling 425 basis points between September and April.
Aussie interest rate swaps also rose after the housing data, with the one-year swap up 9 bps to 4.06 percent, as borrowers locked into fixed rates in expectations of an increase.
"With most market economists, including ourselves, expecting the next move in the official cash rate to be up, more and more borrowers will be locking in home loan rates going forward," said Helen Kevans, economist at JP Morgan.
In Malaysia, interest rate swaps extended their rising streak after the July jobs report in the United States, the Southeast country's biggest trading partner, underpinned hopes of an economic recovery.
The 5-year swap rose 8 bps to 3.85 percent. It has gained some 23 bps this month.
"These are banks hedging their loan and asset books. We don't feel there will be tightening but people are just a bit spooked by the slightly stronger numbers coming out of the U.S.," said a Kuala Lumpur-based trader. (Reporting by Umesh Desai; Editing by Kazunori Takada)