China's plan to fund its new overseas investment agency by issuing $200 billion worth of special yuan bonds should not deal a heavy blow to the domestic stock market, a top local economist was quoted on Tuesday as saying.

Because the bonds are likely to be issued to the central bank rather than to domestic financial institutions or the public, the move would not immediately reduce liquidity in the economy, Xia Bin, head of financial research at the Development Research Centre, a cabinet think tank, said.

"So this measure would not deal a heavy blow to the current stock market," Xia told the Shanghai Securities News in an interview.

The Shanghai composite index , which ended up 0.41 percent at 3,836.294 on Monday, slipped 7 percent in June as investors worried that the issue would absorb large amounts of funds from the financial markets.

Chinese money market rates and most bond yields also rose on Monday on worries about the impact of the special bond issue.

Xia was quoted as saying the central bank was expected to use the 1.55 trillion yuan ($203.5 billion) in future special bonds rather than central bank bills to conduct open market operations.

No timetable has been given for the sale of the bonds, but all of the bonds are expected to be issued this year after China's parliament approved the issue and agreed to raise the country's debt ceiling accordingly.

Yi Gang, assistant governor of the People's Bank of China, or central bank, told the Shanghai Securities News on Monday that the bond sale would be carried out in stages.