NAIROBI, Dec 28 (Reuters) - The Kenyan shilling weakened 0.3 percent against the dollar in thin volumes on Wednesday after banks squared off dollar positions ahead of the New Year, traders said. At 0735 GMT, commercial banks posted the local currency at 83.95/84.05 to the dollar, leaving the shilling down 3.7 percent against U.S. currency in the year-to-date after an aggressive tightening of monetary policy heaved the shilling off a record low of 107 in October. Market players expected the shilling to remain broadly steady against the dollar in the run up to the year's end, even though maturing governmet securities are seen easing tight liquidity in the money market. "There is a bit of demand mainly from the interbank market," Ignatius Chicha, head of markets at Citibank said. Duncan Kinuthia, head of trading at Commercial Bank of Africa, said the extra liquidity would unlikely affect the shilling's levels as corporate clients remained largely out of the market during the holiday period. The liquidity squeeze pushed the interbank average lending rate up to 30.2 percent on Tuesday from 29.3 percent a day earlier.

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