* Korean swaps basis narrows, interest rate swaps down
* Indian overnight-indexed swaps fall further
* New Zealand pushes back rate rise expectations
By Vidya Ranganathan
SINGAPORE, Oct 29 (Reuters) - Interest rate swaps fell in India and South Korea on Thursday, with traders citing the sell-off in Asian stocks as a bigger reason for the rates rally than an ongoing paring back of expectations for rate rises.
In New Zealand, bill futures jumped after the Reserve Bank of New Zealand kept rates unchanged and underscored its dovish bias, prompting market players to reassess their expectations for policy tightening.
Korean interest rate swaps extended a flattening trend, although yields fell across the curve in line with a further drop in the stock market and a rally in bonds.
Seoul's main share index hit a 2-month low, while treasury bond futures jumped and the 5-year bond yield hit 4.98 percent, falling 12 bps this week.
The one-year IRS was quoted about 3.58 percent, down 10 bps this week. Meanwhile, the dollar/won cross currency swap market was steady at around 0.7 percent for one-year swaps, trapped by exporter hedging on one side and a heavy bout of paying by onshore and offshore borrowers looking to swap foreign currencies into won.
The basis, the difference between cross-currency swaps and interest rate swaps in won and an approximate gauge of yield for foreigners investing in Korean rates, has narrowed about 7 bps to 293 bps this week.
"Exporters are still selling forwards aggressively but the liability side is supporting the CCS levels," said a trader in Seoul.
"And the bond market rally with the equity market panic has made the basis narrower. Payers are firm so the IRS did not outperform."
The trader reckoned market expectations for the Bank of Korea to start raising rates as soon as the end of this year had not changed, and the bond market rally was merely a reaction to the drop in equities.
But talk of imminent steps in Hong Kong to rein in a bubbly property market coming days after the Reserve Bank of India (RBI) asked banks to provide more capital against property lending suggested policymakers might not be in a rush to raise rates.
"We think burden-sharing between fiscal authorities, financial regulators and monetary authorities for dealing with property price inflation will allow the monetary authorities to maintain their accommodative stances for longer than they otherwise would have," ING's chief Asian economist Tim Condon said in a note to clients.
"For example, the latest RBI decision increases the likelihood of a slower path of interest rates hikes.
"Korea is another candidate. Relief from having to deal with property price inflation alongside low inflation pressure could lead to a scaling back of the consensus forecast for Bank of Korea rate hikes," Condon wrote.
In India, overnight-indexed swaps fell further across the curve as traders continued to receive rates, on the view that the overnight rate would not budge for several months after the quarterly monetary policy statement signalled the central bank's intention to keep rates on hold for a while.
The one-year OIS fell on Wednesday to 4.72 percent, a gradual fall from as high as 5 percent two weeks ago.
The overnight call rate was quoted at 3.25-3.30 percent, close to the bottom of the RBI's 3.25-4.75 percent policy rate corridor, which made it worthwhile for market participants to receive longer term swaps. The 5-year OIS, benchmarked to the Mumbai interbank overnight rate (MIBOR), has fallen 20 bps in the past week to 6.73 percent. (Editing by Jan Dahinten)