* NZ IRS down after economy shrinks for 5th straight quarter
* Hong Kong interbank rates mostly fall
By Umesh Desai
HONG KONG, June 26 (Reuters) - New Zealand interest rate swaps (IRS) eased and the swaps curve flattened after downbeat economic data on Friday but gains were limited amid persistent fears the central bank would hike rates sooner than later.
Hong Kong's money markets mostly eased but overnight rates were higher after a stock market listing by Chinese herbal shampoo maker BaWang International (Group) Holding was heavily oversubscribed.
Dollar borrowing costs fell in Asia after the U.S. Federal Reserve extended emergency funding programs and swap lines saying some financial markets remain impaired and seem "likely to be strained for some time".
In New Zealand, the swap curve gave up some of its recent steepness after the country's economy contracted for the fifth quarter in a row in the three months ended March.
This also backed the central bank's view that interest rates will stay low well into 2010.
The one-year rate fell to 2.98 percent from 3.02 percent, while the 5-year swap dropped more than 6 bps to 5.36 percent.
"There was some initial receiving in reaction to the data, however there is a lot of paying pressure around and the market really struggled to push on from the weak numbers," said Philip Borkin, ANZ-National markets economist.
"There is still a lot of disparity between the RBNZ's view and what the market has got priced in," he said, adding that the OIS market expects higher rates by March next year which is earlier than the central bank's expectation.
Borkin expects the gap in expectations to be bridged with markets increasingly coming in line with the central bank's view.
In Hong Kong, interbank markets mostly fell after the Hong Kong Monetary Authority (HKMA) injected HK$2.713 billion ($350 million) in New York trade on Thursday to keep the trading band intact. This follows Wednesday's HK$3.875 billion infusion.
The Hong Kong dollar is pegged at 7.80 to the U.S. dollar but can trade between 7.75 and 7.85 to the U.S. dollar. Under the linked exchange rate mechanism, the HKMA is obliged to intervene in the market to keep the trading band intact if the currency hits 7.75 or 7.85.
Investors are betting Asia, led by China, would recover ahead of the United States and Europe, and are parking funds in Asia and lapping up new share offerings.
This is also putting upward pressure on the Hong Kong dollar, forcing the central bank to intervene.
Three-month Hibor dipped to 0.11/0.23 percent by midmorning from 0.25/0.35 percent late on Thursday.
The overnight Hibor, however, edged up to 0.01/0.11 percent from 0.0001 late on Thursday as demand for the BaWang IPO continued to squeeze liquidity, dealers said.
BaWang International's IPO which raised HK$1.67 billion ($214 million), was more than 400 times oversubscribed at the retail level, and more than 40 times at the institutional level, causing some tightness in liquidity.
In Singapore, 3-month dollars inched down to 0.60429 percent from Thursday's 0.61 percent. It is down about 7 basis points from end-May and half the March levels.
Money markets are drawing comfort from the Fed's decision to extend by three months a number of funding facilities and a foreign exchange program with central banks around the world designed to support lending.
The U.S. central bank had established a number of programs last year to extend lifelines to credit markets frozen in fear of large losses as a result of the financial crisis.
The programs, which had been scheduled to expire at the end of October, were extended to Feb. 1, 2010. (Reporting by Umesh Desai; Editing by Jan Dahinten)