UPDATE 1-India cash rates jump as debt sales drain funds

(Updates to close)

MUMBAI, Sept 29 (Reuters) - Indian overnight cash rates ended close to their recent high of 16 percent, as debt sales by the government drained liquidity and as demand from banks rose ahead of a holiday for their half-yearly book-closing.

Call rates INROND= ended at 15.75/16.00 percent, above Saturday's close of 11.00/11.50 percent. Cash rates last traded at 16 percent on Sept. 16, its highest since April 2007.

The Indian banking system has been reeling under a cash shortage after companies paid an estimated 400 billion rupees as quarterly advance tax payments earlier this month, forcing the central bank to add money through repos.

"The system was anyway short on cash after the advance tax outflows and then we had the 100-billion-rupee debt auction last week, which has further tightened liquidity," a dealer with state-run bank said.

The federal government sold 100 billion rupees worth of bonds on Friday, cash settlements for which are taking place on Monday.

The government will sell another 70 billion rupees worth of bills on Wednesday, which is expected to further tighten cash conditions, dealers said.

The weighted average rate in the call money market was 14.84 percent, while collateralised borrowing and lending obligation (CBLO), a secured form of money market lending, was 11.94 percent, according to the Clearing Corp of India (CCIL).

Volume in the call money market was 105.24 billion rupees and in CBLO it was 121.64 billion rupees, CCIL data showed.