UPDATE 1-China eases foreign debt caps to help trade finance

* China lets banks incur 12 pct more short-term foreign debt

* Increase is meant to ease trade financing

* China had lowered debt quotas in 2007 and 2008

BEIJING, March 27 (Reuters) - China on Friday acted to boost trade financing by raising the amount of short-term foreign debt that banks may incur.

The State Administration of Foreign Exchange (SAFE) set a quota for the year beginning April 1 of $32.9 billion, up 12 percent from a year earlier.

The newly added amount should all be used to help Chinese exporters and importers, SAFE said in a statement on its website (www.safe.gov.cn).

The foreign exchange regulator also said its efforts in the past two years to control banks' overseas borrowings had succeeded in slowing the growth of short-term foreign debt and had eased pressure for the yuan CNY=CFXS to appreciate.

China cut the banks' short-term foreign debt quota by 10 percent in 2008, after lowering it even more sharply in 2007 when the dominant concern was that short-term foreign debt could mask speculation on yuan appreciation.

The policy shift in 2009, by increasing the amount of short-term foreign borrowings, is aimed to "facilitate growth in the real economy and boost trade financing", SAFE said.

China's exports plunged 25.7 percent in February from a year earlier, marking the fourth straight month of decline, and its trade surplus narrowed that month to $4.84 billion from $39.1 billion in January.

To cushion its firms from the slowdown, China has increased tax rebates on exports from textiles to steel multiple times in recent months.

Beijing has also signed a series of currency swaps with neighbouring nations, including South Korea, Malaysia and Indonesia, which will eventually benefit its own beleaguered exporters. Click on [ID:nPEK66902] for a related story.

SAFE also noted that business risks were rising and credit quality was worsening, as many companies fell prey to the global financial crisis which has yet to bottom out, resulting in big uncertainties surrounding capital flows in and out of China.

"We will stick to the principles of reasonably controlling inflows and being alert to risks," SAFE said. (Reporting by Langi Chiang and Jason Subler)