UPDATE 1-HK-listed auto shares slide after Beijing tax policy

* HK-listed Denway, Geely and rivals plunge on auto policy

* SAIC and most mainland-listed stocks less affected

* Demand momentum remains intact - analyst (Adds more stocks, analyst comment)

HONG KONG/SHANGHAI, Dec 10 (Reuters) - Shares of Hong Kong-listed Chinese auto makers, such as Dongfeng, Denway and Geely, fell sharply on Thursday after Beijing said it would lower the tax incentive for small cars next year, dashing hopes the policy may be extended to benefit cars with larger engines.

"This is bad news as car buyers have to pay more now," said Johnny Wong, an analyst at Yuanta Research.

China will raise the purchase tax on small cars to 7.5 percent next year from the current 5.0 percent. The tax applies to cars with engine sizes of 1.6 litres or less. It is still lower than the original 10 percent purchase tax, which was cut last year to encourage consumers to buy cars. [ID:nTOE5B80BG]

Dongfeng Motor Group Co (0489.HK), the Chinese car making partner of Japan's Honda Motor (7267.T) and Nissan Motor (7201.T), was down 5.15 percent at HK$11.04 by midday.

Shares in Denway Motors 0203.HK, a Honda partner, fell 4.37 percent. The stock had risen 24 percent in a month through Wednesday on hopes that its prime model Accord, with an engine size of 2 litres and above, could benefit if Beijing expanded the tax incentive coverage, analysts said.

"The market earlier expected this policy at least will be unchanged and did not prepare that the tax will increase," Wong said.

The news also triggered profit taking in shares of homegrown automakers, including Geely Automobile Holdings (0175.HK) and BYD (1211.HK), that posted steep rallies earlier in the year partly due to record sales of their smaller engine cars fuelled by the tax policy in 2008.

Geely, named recently by Ford Motor (F.N) as the preferred bidder for its Volvo car unit, plunged 4.77 percent to HK$4.37.

BYD, which is 10 percent owned by U.S. billionaire Warren Buffett's Berkshire Hathaway (BRKa.N), eased 2.08 percent.

However, mainland listed auto makers seem to be little affected.

"The lowered purchase tax benefit is a slight negative but unlikely to derail PV (passenger vehicles) demand momentum," Vincent Ha, an analyst at Deutsche Bank said in a daily note.

SAIC Motor Corp (600104.SS), the country's biggest automaker, dipped 0.31 percent to 15.85 yuan by late morning, while Jiangling Motor (000550.SZ), 30 percent owned by Ford Motor (F.N) fell 0.37 percent to 24.12 yuan. (Reporting by Alison Leung and Fang Yan; Editing by Jacqueline Wong)