SHANGHAI, Dec 28 (Reuters) - China"s short-term money rates eased from levels around their highest in months on Tuesday after the country"s central bank stepped up liquidity injection to meet higher demand for cash towards the year-end. The People"s Bank of China (PBOC) injected 200 billion yuan ($31.39 billion) through seven-day reverse repos into the banking system, the biggest daily injection since late October, offseting 10 billion yuan worth of such loans expiring on the same day. Market sentiment improved and cash conditions largely balanced after the liquidity operation, some bond traders said, adding they expected markets to smoothly tide over the year-end. The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market was 2.237%, about 18 basis points lower than the previous day"s closing average rate of 2.4156%, the loftiest level since Sept. 29. Also the repo for the same tenor traded on Shanghai stock exchange also eased to 5.18% around midday, down from an 11-month peak of 6% hit a day earlier. A trader at a Chinese bank said the elevated borrowing cost on the stock exchange suggested that cash tension was structural as non-bank financial institutions, which usually have to borrow from major state-owned banks as their source of funds, had to resort to the exchange market for cash at much higher prices. Many lenders refrain from lending to peers as they have to shore up cash positions to meet various administrative requirements at year-end, including a quarterly health check by the central bank. "I don"t think cash conditions will dramatically tighten again at the year-end," said a second trader at a Chinese bank. "The PBOC"s remarks last night about flexible adjustments also improved sentiment." The central bank said at its 2022 work meeting that China will keep its monetary policy flexible next year as it seeks to stabilise growth and lower financing costs for businesses amid growing economic headwinds. read more ($1 = 6.3720 Chinese yuan)