UPDATE 1-Indian cash rates end lower but liquidity tight

(Updates to close)

MUMBAI, Aug 25 (Reuters) - Indian overnight cash rates drifted away from 7-month highs on Monday to close at 9 percent, as demand for funds reduced in the second week of the reporting fortnight, but tight liquidity kept it from falling further.

Call rates INROND= ended at 9.00/9.15 percent, much lower than 9.70/9.80 percent at close on Saturday.

"Rates are slightly lower as it is the second week of the fortnight, so demand is less, but we had the auction outflows today, which drained 60 billion rupees," a dealer with a state-run bank said.

"Rates are likely to edge higher next week as we have the cash reserve ratio hike taking effect on Saturday," he added.

The Reserve Bank of India sold 60 billion rupees worth of bonds on Friday, the cash settlements for which took place earlier in the day.

The central bank at its policy review last month increased the banks's cash reserve ratio, or the amount of deposits banks have to keep with them, by 25 basis points to 9 percent with effect from August 30.

The weighted average rate in the call money market was 9.70 percent, while collateralised borrowing and lending obligation (CBLO), a secured form of money market lending, was 8.89 percent, according to the Clearing Corp of India (CCIL).

Volume in the call money market was 137.41 billion rupees and in CBLO it was 242.32 billion rupees, CCIL data showed.

The central bank did not receive any bids at its daily reverse repo auction for the fifth consecutive session, while it pumped in 201.65 billion rupees in to the system through the repo route, indicating the extent of cash crunch in the system. (Reporting by Swati Bhat; Editing by Harish Nambiar)