MANILA, Nov 10 (Reuters) - Philippine debt yields are expected to keep to a tight range but drift lower this week as investors welcomed the central bank's decision to cut banks' reserve requirements to inject liquidity into the financial system.

Yields were likely to be boxed in a 5-10 basis point range for the rest of the week after falling 20 basis points on Friday when the central bank cut banks' regular reserve requirements by 2 percentage points, traders said.

It was the first time the central bank had tweaked banks' reserve requirements since July 2005.

"It seems the central bank is being pro-active in dealing with liquidity pressures," said a trader from a local bank. "The cut in banks' reserve requirements favours the market."

The central bank move, which takes effect on Nov. 14, would release about 60 billion pesos into the banking system, analysts said.

"The market right now will be consolidating and they will assess whether yields can still go lower as we move toward next week when we will see the full effects of the cut in reserve requirements," another trader from a local bank said.

The monetary authority's action follows similar moves in Asia in recent weeks by China, India, Taiwan and Vietnam to shield their economies from the world's worst financial crisis in decades. Some economists said the move may allow the central bank to keep interest rates steady at its policy-setting meeting on Nov. 20 since inflation remained at double-digit levels, even if it appeared to have peaked.

The government will sell 5 billion pesos worth of 182-day and 364-day Treasury bills at an auction on Monday at 0500 GMT.

Traders expect the 6-month and one-year paper to fetch an average rate of 6.5-6.75 percent and 7-7.25 percent, respectively, at the auction, levels that are near the yields quoted in the secondary market.

Average best bids and done deals in the secondary market*:

Nov 10 Nov 3 Nov 10 Nov 3
(in percent)
three-month 6.4654 6.6788 6.2500 6.5000
six-month 6.8827 7.0481 6.7000 6.9250
one-year 7.1750 7.3442 7.0500 7.2250
two-year 7.4562 7.8615 7.3000 7.7500
three-year 7.5827 8.0212 7.4750 7.9000
four-year 7.8077 8.1538 7.6850 8.0500
five-year 7.9988 8.2731 7.9000 8.1500
seven-year 8.3212 8.6250 8.2000 8.5000
10-year 8.6692 9.3558 8.5000 9.2500
20-year 13.1346 13.1385 13.0000 13.0000
25-year 13.6269 13.6269 13.5000 13.5000