China's central bank added a record 290 billion yuan ($46billion) to the financial system using reverse-repurchaseagreements, seeking to address a cash squeeze in the run-up to aweeklong holiday.

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The People's Bank of China conducted 190 billion yuan of 28-dayreverse repos and offered 100 billion yuan of 14-day contracts,according to a trader at a primary dealer required to bid at theauctions. Today's total is the highest for a single day inBloomberg data going back to 2004.

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“Record amounts of reverse repos are to meet the surge in cashdemand before the quarter-end and the holidays,” said Liu Junyu, abond analyst in Shenzhen at China Merchants Bank Co., the nation'ssixth-biggest lender. “As the central bank steps up adding fundsthrough reverse repos, it's unlikely to cut the reserve ratio thismonth.”

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The seven-day repurchase rate, which measures interbank fundingavailability, gained 19 basis points to 4.70 percent as of 4:30p.m. in Shanghai, according to a weighted average compiled by theNational Interbank Funding Center. It touched 4.75 percent, thehighest level since June 28.

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The central bank kept the yields on 28- and 14-day reverse reposunchanged at 3.6 percent and 3.45 percent, respectively, the tradersaid. China's financial markets will be shut from Oct. 1 to Oct. 5for the National day and mid-autumn holidays.

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China's monetary authority also auctioned 40 billion yuan ofsix-month treasury deposits to commercial banks on behalf of theMinistry of Finance at a yield of 4.32 percent, according to adifferent trader. That compared with yesterday's six-month Shanghaiinterbank offered rate of 4.09 percent.

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The PBOC lowered the amount of cash lenders must set aside asreserves in May to 20 percent, the second reduction this year.

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China's one-year interest-rate swap, the fixed cost needed toreceive the floating seven-day repo rate, declined seven basispoints, or 0.07 percentage point, to 3.18 percent, according todata compiled by Bloomberg.

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The yield on the 2.95 percent government bonds due August 2017dropped five basis points to 3.23 percent, data from the InterbankFunding Center shows.

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Bloomberg News

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