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REUTERS/Tingshu Wang/File Photo Acquire Licensing RightsSHANGHAI/SINGAPORE, Aug 25 (Reuters) - China's banks will cut deposit rates soon as part of efforts to make mortgages more affordable and revive property demand, analysts reading China's cryptic policy messages reckon. But China did not opt for a broad rate cut that would further depress banks' narrow net interest margins, instead deferring to banks to cut their deposit rates and give themselves room to cheapen mortgages, analysts said. Lowering deposit rates will give banks much needed wiggle room to cut mortgage rates. "Further reductions to the deposit rates are 'arrows on the string,'" said Wang Yifeng, banking analyst at Everbright Securities. He also expects a tweak to rules so that existing mortgage rates can be reset lower.

Persons: Tingshu Wang, Wang Yifeng, Zhu Qibing, LPR, Zhu, Lu Ting, Lu, Xing Zhaopeng, Xing, Winni Zhou, Tom Westbrook, Samuel Shen, Vidya Ranganathan, Jacqueline Wong Organizations: China Securities Regulatory Commission, REUTERS, Rights, Bankers, Everbright Securities, People's Bank of China, BOC International China, Nomura, ANZ, Thomson Locations: China, Beijing, Rights SHANGHAI, SINGAPORE, Shanghai, Singapore

This week it hit a six-month low on the dollar after surprise cuts to key China rates, putting the gap between 10-year sovereign yields in China and the U.S. at its widest since November. The position, with China's rates below those in the United States , is the reverse of more than a decade of high-growth that saw China paying better yields than markets in the west. "The People's Bank of China's tolerance of currency weakness ... also opens up room for further yuan weakness." Even if the Federal Reserve holds rates steady later on Wednesday, as expected, traders are braced for an extended period of elevated U.S. interest rates and, increasingly, for China to hold rates low or push them even lower. Analysts polled by Reuters expect the PBOC will cut the costs of medium-term loans on Thursday and many market watchers expect a benchmark lending rate cut next week.

Persons: hasn't, Morgan, J.P, Tommy Xie, Kiyong Seong, Winni Zhou, Brenda Goh, Tom Westbrook, Kim Coghill Organizations: Bond, People's Bank, People's Bank of China, Federal Reserve, Reuters, Authorities, OCBC Bank, Societe Generale, Thomson Locations: SHANGHAI, SINGAPORE, China, U.S, Beijing, United States, Asia, Shanghai, Singapore

"The central bank's rate cut decision was not a complete surprise to the market," said Ken Cheung, chief Asian FX strategist at Mizuho Bank. Further interest rate cuts in China would only widen the yield gap with the United States, even if the Fed pauses this week, sending the yuan lower and accelerating capital outflows. Tuesday's rate cut suggests policymakers are increasingly worried about the health of China's recovery, traders and analysts said. Bloomberg reported on Tuesday, citing unnamed sources, that China was considering at least a dozen stimulus measures including cuts to interest rates to support areas such as real estate and domestic demand. "There could be another RRR or policy interest rate cut in Q4, depending on the economic outcome over the next several months."

Persons: Ken Cheung, Yi Gang, Cheung, Marco Sun, Frances Cheung, Goldman Sachs, Winni Zhou, Tom Westbrook, Sam Holmes, Jacqueline Wong Organizations: People's Bank of China, Mizuho Bank, MUFG Bank, Bloomberg, OCBC Bank, Thomson Locations: SHANGHAI, SINGAPORE, China, United States, outflows

"I don't have the brain for stock investments, and I am waiting to redeem mutual fund products once they break even. The interest in precious metals is a worrying indicator that China's efforts to revive its economy via domestic spending, after years of strict COVID curbs, may not be working. Households savings grew by 9.9 trillion yuan in the January-March period, after rising a record 17.8 trillion yuan in 2022. In 2021, they grew by 9.9 trillion yuan. "Economic fundamentals, risk aversion and the recovery of domestic consumption all drive the investment demand for jewellery and precious metals," said Pang Xichun, research director at Nanjing RiskHunt Investment Management Co.

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