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RIYADH, Oct 27 (Reuters) - Saudi Arabia's government does not plan to make its usual monthly issue of local currency bonds in October because of its success last week in raising money overseas, the Maaal financial website quoted unnamed sources as saying on Thursday.

The suspension of domestic issuance could, temporarily at least, ease upward pressure on Saudi money market rates, which have been rising sharply as government debt sales soak up liquidity in the banking system.

In mid-2015, the government began offering about 20 billion riyals ($5.3 billion) of local currency bonds every month to help cover a huge budget deficit caused by low oil prices.

But this month, the central bank has not notified local banks of a bond offer, Maaal quoted the sources as saying. Finance Ministry officials could not be reached to comment.

Maaal said domestic issuance had been suspended because the government succeeded last week in raising a mammoth $17.5 billion in its first international bond sale, reducing the need to raise more funds for now.

Maaal did not say when or whether local bond sales would resume, but finance minister Ibrahim Alassaf, speaking to reporters on Wednesday, indicated that the government still considered them a tool to raise money.

The kingdom's debt issues will not be limited to conventional bonds, but will be followed by other instruments such as sukuk, Alassaf said without elaborating.

Because of tightening liquidity, the three-month Saudi interbank offered rate SASAR3MD= shot up to 2.386 percent last week, its highest level since January 2009, having stood below 1.0 percent a year ago.

This threatens to squeeze companies' finances and hurt the economy, which has already been slowing because of government austerity measures introduced in response to cheap oil.

The rate has stopped climbing this week, partly because traders believe the government is likely to deposit some of its $17.5 billion bond proceeds in local banks, improving liquidity.

The government has issued a total of 169.7 billion riyals of bonds to banks since mid-2015, including 83.5 billion riyals during the first eight months of this year, Maaal said.

Central bank data suggests banks have had increasing difficulty finding the money to buy the bonds and may have purchased only about 2.4 billion riyals' worth in August.

(Reporting by Marwa Rashad; Writing by Andrew Torchia; Editing by Kevin Liffey) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))