SHANGHAI China's central bank ramped up liquidity support to the banking system as it rolled over medium-term policy loans on Monday, but kept the interest rate unchanged as expected.

The People's Bank of China (PBOC) is walking a tight rope between keeping liquidity ample to aid a struggling economy and stabilising the yuan amid expectations of "higher for longer" U.S. rates.

The PBOC said in a statement it conducted medium-term lending facility (MLF) operations worth 789 billion yuan ($107.96 billion) to keep liquidity in the banking system adequate. It held the rate on the one-year policy loans at 2.50%, unchanged from the previous operation.

With 500 billion yuan worth of MLF loans maturing, the PBOC is injecting fresh liquidity into the banking system. Market watchers polled by Reuters last week predicted no change to the MLF rate.

Monday's operations shows "the PBOC hopes to provide liquidity to ease stress in the market," said Stone Zhou, director of Global Markets at UOB China.

This month, a slew of Chinese local governments, including Liaoning and Chongqing, are rushing to issue special refinancing bonds to repay outstanding liabilities, as Beijing steps up efforts to reduce growing debt risks that remain a worry for investors.

Analysts expect issuances of such bonds to hit at least 1 trillion yuan this year.

In addition, tax collections by the government in October will also likely cause liquidity stress, analysts said.

The PBOC has cut the MLF rate - a guide to China's benchmark lending rates - twice this year to lower borrowing costs in an economy suffering from weak consumption and a deepening property crisis. But further monetary easing could widen China's yield gap with the United States, putting fresh downward pressure on the yuan, which has lost roughly 5.5% against the dollar so far this year.

Xing Zhaopeng, senior China strategist at ANZ, said Monday's move by the PBOC cannot exclude a five basis point cut to 1-year lending benchmark rate on Friday.

"We believe the PBOC will maintain its easing pace at one measure per month."

($1 = 7.3085 Chinese yuan renminbi)

(Reporting by Shanghai Newsroom; Editing by Christian Schmollinger & Shri Navaratnam)