SHANGHAI (REUTERS) - China's Cabinet has approved the re-launch of government bond futures after an 18-year suspension, state media reported on Wednesday, as the country moves towards a more liberalised interest rate regime.

The approval by the State Council paves the way for the China Securities Regulatory Commission (CSRC) to re-start trading as soon as it wants.

The market widely expects the resumption will occur around mid-September, the official China Securities Journal said.

Authorities suspended government bond futures trading in 1995 after a major trading scandal caused heavy losses to a state-controlled securities brokerage.

The re-introduction of a government bond futures market has been expected since the CSRC began simulated futures trading in February 2012. Officials have said that the derivatives are likely to be launched this year.

The move is part of efforts by Chinese regulators to develop China's bond market, which has grown rapidly in recent years but remains underdeveloped. Bond futures will improve price discovery and offer new hedging tools to dealers and investors.

Bond futures will also support China's gradual move to liberalise interest rates. Unlike bank loans, government and corporate bonds are not subject to the benchmark deposit and lending rates set by the People's Bank of China for maturities up to five years.

China had 8.07 trillion yuan (S$1.65 trillion) worth of government bonds outstanding at the end of 2012, up 9 per cent from 2011, official data showed.