ANALYSIS-Australian blue chips embrace bonds to flee banks

* Bond market thaw drives demand

* Asian banks expand lending in Australia

* Aussie banks still favoured for short-term loans

By Sonali Paul and Sharon Klyne

MELBOURNE, Oct 29 (Reuters) - A revival in bond markets and access to Asian lenders are driving Australia's biggest companies away from the clutches of the country's top banks, which could trim margin gains and loan-growth prospects for the 'Big Four'.

Companies are keen to diversify funding for the A$50 billion

($46 billion) they annually need to refinance, after spending the past year battling to slash debt by selling new shares as corporate bond markets froze.

"The last 18 months to two years has shown some companies that being narrowly focused on their funding options has been a dangerous position to be in. So now they're looking to broaden their funding," said Anthony Flintoff, senior director, corporate ratings at Standard & Poor's.

There is more choice now and borrowing is becoming cheaper, with Asian banks eager to expand their loan books in Australia and with debt markets opening up.

The main attraction of the bond markets is the longer-dated debt available. Banks typically lend for three years, which puts pressure on companies to constantly refinance. At the peak of the financial crisis, banks made it even tougher by hiking loan fees.

Chief financial officers and treasurers at a range of Australian companies, including shopping mall owner Westfield Group (WDC.AX), told Reuters they would consider bond issues as they look to refinance debt.

Three companies said they would ideally want more than half their debt in bonds.

"The Australian corporate (bond) market is clearly showing promising signs, and overseas there have been record volumes across a broad range of markets," said Tom Honan, chief financial officer of toll roads group Transurban (TCL.AX).

Tabcorp Holdings (TAH.AX) led the way as the first non-financial bond issuer since 2007, raising A$284 million in five-year retail notes in April. Eight other companies have since followed, raising a total of A$2.5 billion in bonds.

Still, bond issues from non-financial borrowers are rare in Australia, making up just 3 percent of this year's record A$83 billion in domestic issuance, according to data from consultancy firm ADCM Services.