LONDON - Morgan Stanley put a 60-70% chance on China being added to one of the world's top government bond indexes later this month, saying the move could funnel $60-$90 billion of investment money into the country in the next few years.

FTSE Russell, which runs the World Government Bond Index (WGBI), a benchmark for an estimated $2 trillion in cash, is expected to announce a decision during its annual review scheduled for September 24.

"We assign a subjective 60-70% probability of inclusion this September and forecast WGBI-related inflows to be US$60-90 billion," Morgan Stanley's analysts wrote in a note on Wednesday.

Index inclusion would be another sign that China is opening up its capital market, they added.

"This supports our view that China will continue to reform its financial market and attract $3 trillion of inflows in the next decade."

China's entry into the WGBI has been held back in recent years by concerns including the liquidity of Chinese government markets, the limited number of currencies investors can execute trades in, as well as the time it takes to settle trades.

Inclusion would give China a 5.7% weight in the WGBI based on current estimates, just behind Germany at 6% and compared to 33.8% for the United States and 16.7%, 8.2% and 7.3% for Japan, France and Italy respectively.

(Reporting by Marc Jones, editing by Karin Strohecker, Kirsten Donovan) ((marc.jones@thomsonreuters.com; +44 (0)20 7513 4042; Reuters Messaging: marc.jones.thomsonreuters.com@reuters.net Twitter @marcjonesrtrs))