(Reuters) - China surprised financial markets with an off-cycle cut to bank funding costs on Thursday. Stocks fell and bonds rallied after the announcement of a 20 basis point reduction in the one-year medium-term lending facility (MLF).

Here are reactions from market analysts:

LEMON ZHANG, FX & EM MACRO STRATEGIST, BARCLAYS, SINGAPORE

"The fact that scale is bigger than 10 basis points suggests there's more to come in terms of benchmark rate cuts.

"I would think it helps on the margin. But after all, you still have a very subdued growth momentum."

MARCO SUN, CHIEF FINANCIAL MARKET ANALYST, MUFG BANK (CHINA), SHANGHAI

"The risk of another slowdown in China's economic growth is on the rise. China's GDP growth slowed in the second quarter ... and a cut in the policy rate could reduce the cost of financing and release liquidity to maintain the momentum of the economic recovery. A large amount of MLF loans are coming due, and it could be another reason explaining the MLF operation."

GARY NG, ASIA-PACIFIC SENIOR ECONOMIST, NATIXIS, HONG KONG

"It shows the PBOC wants to be more accommodating to banks in lowering their medium-term funding costs ... cutting the MLF rate at a larger scale can help shield the net interest margin.

"The yuan may still be under pressure if investors continue to expect lower interest rates in China. If confidence improves ... the yuan may not necessarily depreciate as net capital inflows may return."

FRANCES CHEUNG, HEAD OF FX AND RATES STRATEGY, OCBC BANK, SINGAPORE

"The MLF was done when there is no near-term maturity, showing that PBOC intends to send an easing signal. The cut in the MLF rate is of a bigger magnitude than the cut in 7-day reverse repo rate, primarily because the MLF rate was at an elevated level compared to other sources of funds."

KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE

"In terms of the challenges facing the Chinese economy, rate cuts by themselves, particularly of this magnitude, is not really going to be that material.

"Issues facing the property sector (and) the lack of confidence that is holding back consumer spending ... need more concrete fiscal support or other type of policy measures to address."