SHANGHAI, June 9 (Reuters) - China’s central bank made a minimal cash injection into the banking system on Wednesday as it has done for more than three months, raising concern among traders that short-term money rates could spike ahead of any surge in cash demand. The People’s Bank of China (PBOC) injected 10 billion yuan ($1.56 billion) through reverse repurchase agreements on Wednesday. Since the end of February, the People’s Bank of China (PBOC) has not drained more than a net 30 billion yuan ($4.69 billion) or injected more than 10 billion yuan ($1.56 billion) through reverse repos in a single week, compared with weekly injections and drains of more than 500 billion yuan seen in January. In the past two weeks, it has made no net weekly injections or drains. The PBOC-run Financial News this week quoted analysts as saying that the central bank was keeping a prudent stance toward cash conditions and aimed to send markets a stabilising signal. But declining excess reserves, rising local government bond issuance and banks’ need for bigger cash positions before half-year regulatory checks may force the PBOC to break from its low-profile liquidity management or risk a jump in money rates, economists and traders said. “As financial stability has a higher priority in monetary policy objectives, the central bank is likely to increase cash injections,” said Song Xuetao, economist at Tianfeng Securities. Recent rate volatility has highlighted market concern. The volume-weighted average rate of the seven-day repo traded in the interbank market swung from a four-month high of 2.5786% on May 31 to a three-week low of 2.0618% on June 3. It stood at 2.2705% on Tuesday. On Wednesday, the finance ministry auctioned 70 billion yuan of one-month deposits to commercial banks at 3.35%, 25 basis points higher than a similar auction last month. Market participants attributed the higher yield to uncertainty over cash supply and demand. Song expects the banking system’s liquidity shortfall to reach 800 billion yuan this month, with bond issuance, reserve payments and quarterly bank assessments draining about 1.8 trillion yuan and offsetting fresh cash from finance ministry spending. Ming Ming, head of fixed income research at Citic Securities, said cash needs should be soothed in June by fiscal spending of some 600 billion yuan, as a rebounding economy boost tax revenue and property income. “The liquidity gap in June should be significantly smaller than in May, but we may still be wary of fluctuations in cash conditions.” ($1 = 6.3948 Chinese yuan) (Reporting by Winni Zhou and Andrew Galbraith; Editing by Vidya Ranganathan and Simon Cameron-Moore) Our Standards: The Thomson Reuters Trust Principles.