CDB, the biggest of the three state-owned policy banks, plans to issue 3 billion yuan worth of two-year bonds with a floating coupon linked to the one-year LPR on Thursday, it said in a regulatory filing.

The bank will also issue 3 billion yuan worth of 10-year bonds with a fixed 3.5% coupon, it said.

A senior trader at a domestic brokerage said the planned issuance of an LPR-linked bond is "symbolic".

"It's a gesture to support the development of the market interest rate," he said. "Let's wait and see if it will be popular."

China's policy banks, comprising China Development Bank, the Agricultural Development Bank of China and the Export-Import Bank of China, help to finance government's policy initiatives.

Bonds issued by China Development Bank are some of the most liquid debt instruments in China. A 3.65% 2029 bond issued by CDB was the most-traded bond on China's interbank market in October, according to data from the National Interbank Funding Center.

The one-year LPR is set by the People's Bank of China (PBOC) based on quotes from a panel of banks, and became the official lending benchmark in August.

Last week, China lowered its one-year LPR to 4.15% from 4.20%, and cut the five-year LPR to 4.80% from 4.85%, as policymakers try to reduce company funding costs and boost an economy hit by weak domestic demand and U.S. trade tariffs. [nL3N2802YS]

($1 = 7.0389 Chinese yuan)

(Reporting by Andrew Galbraith; Editing by Shri Navaratnam)