* Latest easing comes as China's economic slowdown deepens
* More intensive stimulus may needed - analysts
* New 1-year benchmark rate cut to 4.20% from 4.25%
* China is 'experimenting' with new rate system - fund manager
* High debt levels, property bubble fears seen limiting policy room (Adds more quotes)
SHANGHAI, Sept 20 (Reuters) - China cut its new one-year benchmark lending rate for the second month in a row on Friday, a step by the central bank to try to wrestle down borrowing costs and support the economy as the Sino-U.S. trade war drags on.
But the move was far more cautious than easing by the U.S. Federal Reserve and the European Central Bank over the past week, suggesting Chinese policymakers remain reluctant to join a global stimulus wave due to worries about mounting debt.
Still, analysts say Beijing's restraint is being put to the test, as worsening economic data in August has raised fears that third-quarter growth could slip below 6%, breaching the lower end of the government's 2019 target.
Many China watchers believe more forceful measures will be needed soon to avoid a sharper slowdown and get the economy back on an even keel.
As widely expected, China's new Loan Prime Rate (LPR) -- for banks' best customers -- was cut 5 basis points (bps) at Friday's monthly fixing to 4.2%, the second time it has been trimmed since it was revamped in August, and days after the central bank's latest reduction in banks' reserve requirements (RRR) took effect.
Total reductions in the rate so far, at 11 bps, are less than half of the Fed's quarter-point rate cut on Thursday, which some analysts say reflects policymakers' concerns that lower rates could lead to property bubbles and add to financial risks.
The five-year benchmark rate, which is likely to be used for mortgages, was left unchanged at 4.85%.
"Since the new rate is relatively untested, the PBOC (People's Bank of China) appears to be taking a measured approach at first," Julian Evans-Pritchard, senior China Economist at Capital Economics, said in a note.
"However, with economic activity likely to come under further pressure in the coming quarters and monetary easing so far failing to generate much of a pick-up in credit growth, we think the PBOC will need to start engineering larger declines before long."
While small, the latest cut signals to markets that policymakers remain open to further easing, some analysts said.
REFORMS TO BRING RATES DOWN OVER TIME
China's central bank has been struggling to bring down financing costs for years, particularly for small, private companies which generate a large share of country's economic activity and jobs. But such firms are considered bigger credit risks, and banks have long favoured state-backed enterprises.