SHANGHAI, May 20 (Reuters) - China stocks closed higher on Friday after Chinese banks cut the benchmark reference rate for mortgages by an unexpectedly wide margin, to revive the ailing housing sector and to prop up a slowing economy hit by severe COVID-19 outbreaks.

The blue-chip CSI300 index rose 2.0%, to 4,077.60, while the Shanghai Composite Index gained 1.6% to 3,146.57 points.

** For the week, the CSI300 index added 2.2%, the biggest weekly gain since April 1, while the Shanghai Composite index added 2%.

** The five-year loan prime rate (LPR) was lowered by 15 basis points to 4.45% from 4.60%, while the one-year LPR was unchanged at 3.70%.

** This came as the central bank on Sunday reduced the lower limit of interest rates on home loans by 20 basis points, based on the corresponding tenor of benchmark Loan Prime Rates (LPRs), for purchases of first homes.

** "The intent and message from these two consecutive policy moves are very clear: Beijing wants to rescue the property markets," said Nomura analysts in a note.

** Nomura analysts led by Lu Ting added the impact will likely be limited, as the mortgage rate cut is small compared with previous downcycles, while mortgage rates have already started to decline, even before recent policy moves.

** Foreign investors were net buyers of A-shares, with Refinitiv data showing inflows of 18.2 billion yuan ($2.73 billion) through Stock Connect, the largest daily inflow since Dec 9, 2021.,

** Slightly denting sentiment, Shanghai reported three new cases of COVID-19 outside quarantined areas for Thursday, snapping five days of no such cases.

** Real estate developers dropped 1.4% following the rate cut, after a 2.3% jump in the previous session. While coal miners, liquor makers and transport companies jumped at least 4% each.

** U.S. President Joe Biden may talk with his Chinese counterpart Xi Jinping in the coming weeks, national security adviser Jake Sullivan said on Thursday. (Reporting by Shanghai Newsroom; editing by Uttaresh.V)