SHANGHAI/BEIJING - China's finance ministry will allow local governments to front-load more than 500 billion yuan ($72 billion) in new general purpose bond issuance this year as it encourages investment to support a slowing economy, four sources told Reuters.

The front-loaded bond quota is intended to be used up before March, the sources said. China sets its yearly quotas for local government bond issuance at its annual parliamentary meeting in March.

"The front-loaded 500 billion yuan in new issuance for general-purpose bonds was given as oral guidance, there is no formal document," one of the sources said, speaking on the condition of anonymity.

The source added that the market impact was likely to be minimal, as local governments were also allowed to front-load issuance last year. Local governments issued 580 billion yuan worth of new general-purpose bonds early in 2019.

Another source said that the front-loaded quota would not exceed 60% of last year's total new general-purpose bond issuance. Local governments issued 907.4 billion yuan worth of new general-purpose bonds in 2019.

The Ministry of Finance did not immediately respond to Reuters' faxed requests for comment.

The southwestern region of Guangxi is set to become the first local government to issue new general-purpose bonds in 2020 on Thursday. In a regulatory filing on Wednesday, the region said proceeds from its 1.1 billion yuan issuance would be used to fund water infrastructure projects.

Approval for early issuance of general-purpose bonds came after China said in November it would allow local governments to issue up to 1 trillion yuan in special bonds early using the 2020 quota.

The central province of Henan became the first local government to issue special bonds out of the 2020 quota on Jan. 2. urn:newsml:reuters.com:*:nL4N2970SF

Analysts at BofA Global Research said they expect about half of the front-loaded special-bond quota to be used in January, and estimate China will raise its full-year special-bond quota to 3.15 trillion yuan from 2.15 trillion yuan in 2019.

Local government bond issuance could push the People's Bank of China (PBOC) to inject more liquidity into the banking system, despite already-low rates in the interbank market, the analysts said.

A combination of quarterly tax payments, local government bond issuance and short-term demand for cash ahead of the Lunar New Year holiday is expected to create a liquidity gap of as much as 2.8 trillion yuan later this month. urn:newsml:reuters.com:*:nL4N28T1R0

"We believe (the) PBOC will need to provide more short- and medium-term liquidity through January given the heightened liquidity demand," the analysts said.

($1 = 6.9447 Chinese yuan)

(Reporting by Xiangming Hou and Xiaochong Zhang in Beijing, and Fang Wu, Steven Bian and Andrew Galbraith in Shanghai; Editing by Jacqueline Wong) ((Andrew.Galbraith@tr.com; +86 21 2083 0079; Reuters Messaging: andrew.galbraith.thomsonreuters.com@reuters.net ; Twitter: https://twitter.com/apgalbraith))