* Russia raised rates by 100 bps, sharpest move since 2014

* Key rate is now at 6.5%, the level of June inflation

* Nonresidents stepped up buying of OFZ bonds

* Rouble is expected to win from higher rates at home

MOSCOW, July 27 (Reuters) - The inflow of foreigners' money into Russian OFZ treasury bonds last week increased at its fastest pace so far this year, amid expectations that a sharp rate increase by the central bank could hasten the end of the monetary-tightening cycle.

The Bank of Russia raised its key interest rate by 100 basis points to 6.5% on Friday to fight stubbornly high inflation and did not rule out further increases after its sharpest hike since late 2014.

In the week to July 23, the rate-setting day, OFZ bonds saw 46.3 billion roubles ($628 million) in foreign money inflow, the highest weekly influx so far this year, the National Settlement Depository said.

"International inflows have intensified over the last week, with the foreign bid being mostly concentrated in the belly," VTB Capital said of the OFZ yield curve of debt with tenors of several years.

Yields on short-term OFZs rose after the rate hike, while their prices that move inversely dipped. Yields on benchmark 10-year OFZs fell to 6.95% on Tuesday from 7.27% seen days before the hike amid the hunt for longer-term bonds.

The central bank signalled that the key rate will not exceed 8% in the current tightening cycle and OFZ yields will become more appealing once inflation slows, said Olga Nikolaeva, senior investment strategist at ITI Capital.

"This is the reason to buy bonds in the middle and the far-end of the yield curve," Nikolaeva said.

The U.S.-Germany agreement on the Russia-led Nord Stream 2 gas project has also supported demand, said Dmitry Polevoy from Locko Invest.

Before the rate hike, foreign investors' share among holders of OFZ bonds designed to plug budget holes was on decline amid sanctions and increased debt issuance to fight the coronavirus crisis. Their share was at 19.7% as of July 1, down from 34.9% in early 2020.

From mid-June, U.S. banks are barred from buying new OFZ bonds directly from Russia but are allowed to purchase papers on the secondary market.

U.S. Morgan Stanley bank said that rouble's carry trade was still one of the most attractive across emerging markets, and it planned to "go long 10y OFZs versus short 10y USTs."

"There is no yield if you go to Japan, or America, or Europe. Thank you, Mother Russia, for raising the interest rate," OFZ veteran investor Jim Rogers said. ($1 = 73.7150 roubles) (Reporting by Andrey Ostroukh in Moscow Editing by Katya Golubkova and Matthew Lewis)