SHANGHAI, June 19 (Reuters) - China is expected to hold

benchmark lending rates steady on Thursday, a Reuters survey

showed, even as expectations for an interest rate reduction grew

this month following a flurry of weaker-than-expected economic

data.

Analysts note that policymakers' ability to reduce lending

rates will remain constrained by China's wide yield gap with

developed countries, especially the United States, and the risk

of further pressuring a fragile yuan currency.

The loan prime rate (LPR), normally charged to banks' best

clients, is calculated each month after 20 designated commercial

banks submit proposed rates to the People's Bank of China

(PBOC).

The survey of 30 market watchers found 21, or 70% of all

respondents, expect the one-year and five-year

LPRs to stay unchanged. This was down from an

82% majority who picked a steady outcome in the LPR poll

conducted last month.

Among the remaining nine respondents, seven predicted a

steady one-year LPR but a reduction of 5 to 20-basis-point

reduction to the five-year rate, while the other two forecast a

5 to 10-basis-point cut to both rates.

Expectations for the steady LPR fixings come as the PBOC

kept the rate on one-year medium-term lending facility (MLF)

loans unchanged earlier this week.

The MLF rate serves as a guide to the LPRs and markets

mostly use the MLF rate as a precursor to any changes to the

lending benchmarks.

"While the government has continued to ramp up fiscal

stimulus, the PBOC kept the MLF rate on hold and we also expect

it to leave LPR rates unchanged later this week," Leah Fahy,

assistant economist at Capital Economics, said in a note this

week.

"The renminbi has been under considerable pressure recently

and rate cuts would drag on the currency further. Policymakers

will be keen to avoid this, given the importance the government

places on currency strength."

Financial News, a PBOC-backed newspaper, said in a

commentary this week that China still has room to lower interest

rates, but its ability to adjust monetary policy faces internal

and external constraints, namely shrinking net interest margins

at lenders and a weakening yuan.

"We expect no MLF rate cuts for the rest of 2024, but a

10-20-basis-point LPR cut is possible," said Wang Tao, chief

China economist at UBS.

"If overall growth momentum disappoints and property

activities further weaken, we expect more policy support

measures to be rolled out, possibly around or after the July

Politburo meeting."

China's new home prices fell at the fastest pace in more

than 9-1/2 years in May, official data showed on Monday, with

the property sector in a depressed state despite government

efforts to rein in oversupply and support debt-laden developers.

Moreover, data released last Friday showed that new bank

lending in China rebounded far less than expected in May and

some key money gauges hit record lows, suggesting the world's

second-largest economy is still struggling to pick up the

recovery pace.