HONG KONG, Aug 20 (Reuters) - The cost of borrowing dollars in Asia fell for the second straight day on Thursday while yields dropped in China after the central bank kept rates flat at a 3-month bill auction for the first time in eight weeks.
Dollar interbank rates in the 3-month tenure hit a new low of 0.43 percent in Singapore, down from the previous day's 0.4357 percent. It has fallen 90 basis points since early March.
The decline in borrowing costs has been gathering pace since March when the stock rally began on growing signs the worst of the economic slump was over and risk appetite seemed to be making a comeback.
The MSCI benchmark of Asia-Pacific shares outside Japan has risen 74 percent since early-March.
There are some fears markets are getting ahead of fundamentals and concerns have been building that certain authorities may tighten liquidity to prevent bubbles from forming in their respective asset markets.
And despite these concerns, significant tightening measures are yet to be seen and some analysts warn this could lead to some complacency.
"Markets have yet to get a grasp of what actually ticks the risk aversion that is being played out in global markets," said Suresh Ramanathan, strategist with CIMB Investment Bank.
The low rates in Asia followed the overnight downward pressure on rates in the London interbank market.
Overnight, the three-month London interbank offered rate slipped to record low of 0.41875 percent, while equivalent rates on sterling and euro also eased to all-time lows.
Libor is a rate benchmark for more than $350 trillion worth of financial products worldwide and thus influences incentives for position taking in various asset markets.
"It is a double edged sword, continuously low rates lead the markets into believing that all is rosy. But cheap money may eventually prove to be costly when sell down in assets picks momentum, further exacerbating the risk premium on markets," said CIMB's Ramanathan.
In China, bill and bond yields broadly eased after the central bank sold three-month bills at a yield of 1.3280 percent, flat for the first time in eight weeks after rising 36 basis points.
The indicative one-year government bond yield fell to 1.6291 percent bid on Thursday from 1.6418 percent while the 90-day central bank bill yield fell to 1.3236 percent bid from Wednesday's 1.3382 percent.
Short term bill yields in China have risen in recent weeks on fears a rash of IPOs, seeking to monetise the gains in the booming stock markets, and possible monetary tightening, would suck liquidity out of the system.
Those fears have risen further after new bank lending dropped to 355.9 billion yuan in July from 1.53 trillion yuan in June.
"The government will not tighten monetary policy very soon. they will maintain their stance," said Gao Qi, analyst with BNP Paribas in Singapore.
And although media reports have projected that August new lending would increase modestly from July, possibly to as much as 500 billion yuan, there was little room for further easing in rates on expectations the economic recovery is still on track.
Reflecting this, the weighted average seven-day repo rate rebounded to 1.2886 percent by midday from 1.2837 percent on Wednesday. (Reporting by Umesh Desai; Editing by Jan Dahinten)