UPDATE 1-German regulator seeks grid income cuts from 2009

(adds analyst, share prices)

FRANKFURT May 20 (Reuters) - Germany's energy regulator on Tuesday published proposed cuts to the allowed return on equity rates for power and gas grid companies to apply from January 2009, to enforce more efficiency and savings for consumers.

Share prices showed no reaction and the response from sector analysts was neutral.

A lower cap for permissible income from old and existing grids should bite into the earnings of utilities such as E.ON EONG.DE and RWE (RWEG.DE), even if it does not represent the biggest chunk of their profits.

The proposals envisage that the return on investment cap for both power and gas grids is set at 7.82 percent for new investments from that date, replacing the existing levels of 7.91 percent for power and 9.21 percent for gas for new grids.

Old grids will see their return rate cut to 6.37 percent.

Analyst Stephan Wulf at Sal. Oppenheim said the size of proposed cuts for the electricity businesses was "a positive surprise while cuts on the gas side are more significant but still manageable."

Network companies have until June 13 to respond to the proposals, which will apply for five years in the power sector and for four years in gas, the Bonn-based authority said in a statement.

"...we aim to create a climate to put investements in the network infrastructure on a secure foundation which is both stable and low in risk," said the president of the agency, Matthias Kurth.

Kurth has been trying to find a compromise between operators' who want to lock in high profits and consumer demands for price cuts.

Kurth also said that a previous differentiation between power and gas -- gas pipeline firms claimed they needed higher profits to compensate for losses from seasonal usage changes while power flows were stable -- had been abandoned.

The regulatory regime in comparable European markets had been found to be stricter by experts he consulted, he added.

The move is bound to influence the future ownership of the grids after E.ON said in March it would sell its long-distance power grid to settle an antitrust row with Brussels, but also as it feared that future earnings could become unattractive.

A spokesman for RWE's distribution unit RWE Energy said, "We are not thinking about selling our grids because of this."

"But it is without doubt that the economic viability of our grids will be further undermined."

E.ON and RWE shares traded 1.18 and 1.11 percent lower at 1355 GMT, broadly in line with losses in the DAX blue-chip index .GDAXI of 1.35 percent.

(Reporting by Vera Eckert and Tom Kaeckenhoff)