*

China holds benchmark lending rates steady, confounds

markets

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Analysts expect cuts soon as Fed's easing gives Beijing

leeway

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Raft of weak Chinese economic data raises urgency for

policy

action

(Adds details, policy and economic context, analysts' comments)

SHANGHAI, Sept 20 (Reuters) - China unexpectedly left

benchmark lending rates unchanged at the monthly fixing on

Friday, confounding market expectations that were primed for a

move after the Federal Reserve delivered an outsized interest

rate cut earlier this week.

However, market watchers widely believe further stimulus

will be rolled out to prop up an ailing economy, as the Fed's

easing offers Beijing leeway to loosen monetary policy without

unduly hurting the yuan.

The one-year loan prime rate (LPR) was kept

at 3.35%, while the five-year LPR was unchanged

at 3.85%.

In a Reuters survey of 39 market participants conducted this

week, 27, or 69%, of all respondents expected both rates to be

trimmed.

"The rate cut is likely to be included in a larger policy

package, which is being reviewed by senior officials," said Xing

Zhaopeng, senior China strategist at ANZ, referring to Chinese

policymakers.

"Current economic data and expectations all support a rate

cut. And, lowering existing mortgage loan rates also requires

further reductions in the 5-year LPR, which may lead to a

one-time and significant decline in the LPR in the fourth

quarter."

A string of August economic data, including credit lending

and activity indicators, surprised to the downside and raised

the urgency to roll out more stimulus measures to prop up the

world's second-biggest economy, market watchers said.

Analysts and policy advisers expect Chinese policymakers to

step up measures to at least help the economy meet the

increasingly challenging 2024 growth target.

Faltering Chinese economic activity has prompted global

brokerages to scale back their 2024 China growth forecasts to

below the government's official target of about 5%.

President Xi Jinping last week urged authorities to

strive to achieve the country's annual economic and social

development goals, state media reported, amid expectations that

more steps are needed to bolster a flagging economic recovery.

"There is a good chance that the People's Bank of China

(PBOC) will lower rates and banks to lower LPRs soon," analysts

at Commerzbank said in a note.

"Lacklustre growth calls for monetary policy easing, and the

Fed rate cuts provide room for PBOC to cut."

Monetary policy divergence with other major economies,

particularly the United States, and a weakening Chinese yuan

have been the key constraints limiting Beijing's efforts to

loosen policy over the past two years.

But the U.S. central bank's 50-basis-point cut on

Wednesday that kicked off an anticipated series of interest rate

cuts has unshackled some of China's policy levers, analysts say.

Most new and outstanding loans in China are based on the

one-year LPR, while the five-year rate influences the pricing of

mortgages.