Foreign investors bid aggressively in India government debt auction

MUMBAI (Reuters) - Foreign investors in India aggressively bid for new limits on government bonds as well as for state debt, signalling continued strong interest in a country whose economic fundamentals are seen as relatively better than other emerging markets.

Foreign investors bid 172.66 billion rupees ($2.67 billion), more than three times the 54.68 billion rupees in government debt limits on offer at an auction, said traders familiar with the auction results.

The cut-off was set at 66 basis points, compared with 35 bps at last month's auction, indicating foreign investors were willing to pay hefty fees to buy Indian government debt.

Meanwhile, foreign investors bought nearly 10 billion rupees of the 35 billion rupees in state debt on offer from Monday, the first day in which they were allowed to buy debt issued by India's 29 provinces.

"Today's demand is a strong indicator of long-term investors confidence in INR assets," said Rohit Arora, emerging markets Asia interest rate strategist for Barclays in Singapore.

Arora added India was benefiting from the slump in oil prices and its relative insulation from China's economic slowdown, further spurring foreign demand for domestic assets.

The Reserve Bank of India said last month it would increase investment limits for government debt by up to 1.2 trillion rupees until March 2018 in staggered phases.

The central bank also said it would progressively open up state-level debt, allowing foreign investors to invest up to 500 billion rupees through March 2018.

($1 = 64.7477 rupees)

(Reporting by Suvashree Dey Choudhury; Editing by Rafael Nam and Anand Basu)