* Foreigners bid 259.05 bln rupees for Indian debt quotas
* Bids above 236.61 bln rupees debt limit on offer
* Limits given away at low cost; cenbank policy concerns remain (Adds auction results, details, quote)
By Archana Narayanan and Suvashree Dey Choudhury
MUMBAI, July 22 (Reuters) - India sold its entire debt investment quotas on offer at an auction to foreign investors after prices were set very low, although analysts expressed doubt about how much in actual investments the country would attract given the lack of clarity about the central bank's policy intentions.
The auction for quotas was the first since the Reserve Bank of India took unprecedented steps last week to try to create demand for the rupee, which had fallen to a record low, by aggressively draining cash from money markets and sharply raising short-term interest rates.
India attracted 259.05 billion rupees ($4.34 billion) worth of orders for these quotas - granting the right to buy that amount of debt - higher than the 236.61 billion rupees on offer, according to three dealers who participated in the auction but who declined to be identified.
The full allocation is bound to soothe some concerns after recent heavy selling has pressured the rupee. India has traditionally relied on foreign capital to fund its current account deficit, which hit a record 4.8 percent of gross domestic product in the fiscal year that ended in March.
However, dealers said demand was strong as the cost to obtain these quotas was negligible, while the purchase of these limits do not mean foreign institutional investors (FIIs) are under obligation to fill them.
Investors are worried the central bank, which holds a policy review on July 30, may have more surprises in store to support the rupee, such as increasing reserves banks must hold at the central bank.
Senior government officials who have met the central bank told Reuters a hike in the policy rate could not be ruled out should the rupee fall towards 61 to 62 to the dollar, while adding India could attract dollar flows from non-resident citizens to support the currency.
"The recent measures indicate that the RBI's monetary policy stance is not accommodative anymore. So although FIIs have acquired the limits in today's auction, we may not see them utilising their limits," said Nagaraj Kulkarni, rates strategist with Standard Chartered Bank in Singapore.
Last month, foreigners bought 391.71 bln rupees of debt limits, but had only used 46.2 billion rupees by July 19, National Securities Depository Limited data showed.
UNCOMFORTABLY CLOSE TO LOW
The rupee ended weaker and yields jumped on the Reuters news about a potential hike in interest rates.
The partially convertible rupee closed at 59.72/73 per dollar compared with 59.35/36 on Friday. It has gained nearly 1 percent in the week since the RBI's measures but remains close to a record low of 61.21 hit on July 8.
The benchmark 10-year bond yield ended up 15 basis points at 8.09 percent. Yields have surged more than 40 basis points since the RBI's measures last Monday, with foreigners selling a net $254 million.
Foreign outflows have reached $11.5 billion in debt and equities since late May.
While some of that reflects a broad sell-off in emerging markets on signs of a winding down of U.S. stimulus, there are specific fears about India's slowing economy, lack of substantive reforms and its large current account deficit.
India has taken some steps this year to try to attract foreign investment, such as easing registration rules and increasing ownership limits for long-term investors such as sovereign wealth funds. ($1 = 59.6350 Indian rupees) (Editing by John Mair and Ron Popeski)