LAGOS, May 26 (Reuters) - Nigeria's stock index rose to its highest level in 10 months on Friday, lifted by gains in the banking sector as overnight lending rates eased after central bank cash injections into the banking system.
The index rose by 2.1 percent to 29,064 points on Friday, its highest level since July last year, lifted in particular by gains in First Bank Holdings, which rose the maximum 10 percent.
The rally has helped pushed the index above 29,000, a milestone for investors, and erased year-to-date losses. Over the course of 2016, stocks fell 6.2 percent.
Other gainers include pan-African banking group Ecobank , up 5 percent, while Guaranty Trust Bank was up 5 percent, Zenith Bank gained 4.99 percent and Dangote Cement rose 2.33 percent.
Overnight placement dropped to around 12.5 percent on Friday from 26 percent last week as banking system liquidity rose. That was spurred by the government distributing roughly 200 billion naira ($657.03 million) in budget allocations to states. The central bank also refunded 131 billion naira in matured treasury bills to lenders.
Nigeria, Africa's biggest economy, distributes revenue from its crude exports among its three tiers of government - federal, state and local. A portion of state and local government revenues passes through the banking system.
"The market was short of about 21.62 billion naira on Thursday, but with the injection of cash by the central bank, liquidity positions were reversed to positive, which helped to push down the cost of borrowing," one senior currency trader said.
The interbank rate, which reflects the level of naira cash liquidity in the banking system, is expected to rise again next week as the central bank resumes its intervention in the foreign exchange market, traders said. ($1 = 304.40 naira) (Reporting by Oludare Mayowa; Editing by Paul Carsten and Susan Thomas)