(Adds context, repo operation results)

Dec 16 (Reuters) - The overnight repo rate on Monday rose to its highest level since Oct. 30 as demand for overnight loans was expected to rise on high corporate tax payments and the need to settle Treasury auction purchases.

The cost to obtain an overnight loans backed by Treasury collateral increased to 1.70%, from 1.62% on Friday. It remains within the Fed’s target range for the federal funds rate of 1.50% to 1.75%.

The $2.2 trillion repurchase agreement (repo) market is a crucial source of funding and helps ensure that banks have the liquidity to meet their daily operational needs and maintain sufficient reserves.

A flash stress in the market in September meant that cash available to short-term borrowers all but dried up as demand for funds to settle Treasury purchases and pay corporate taxes overwhelmed loans available.

Investors are focused on the repo market this week as companies again face tax obligations while $78 billion in Treasury supply will need to be settled.

The New York Federal Reserve has increased the amount of liquidity it is providing to the market through its daily repo operations in a bid to avoid a repeat of September’s funding strains.

A 32-day repo operation on Monday was slightly oversubscribed, with the Fed accepting $50 billion from $54.25 billion in bids. The Fed also accepted all $36.40 billion in bids at an overnight operation.