UPDATE 1-China resources, bank stocks hit by reserve rise

* Commodities, property, banks take near-term hit

* China's surprise move signals liquidity slowdown

* Long-term impact on banks less certain (Adds comments, details, background)

By Alison Leung

HONG KONG, Jan 13 (Reuters) - China's surprise decision to increase bank reserve requirements has landed an immediate blow on listed companies in China's resources, property and banking sectors, although the long-term impact of the move remains less certain.

Hong Kong- and Shanghai-traded stocks of companies in all three sectors fell across the board on Wednesday after China's central bank on Tuesday raised bank reserve requirements by 0.5 percentage point effective Jan. 18, its strongest step so far towards tightening monetary policy. [ID:nTOE60B095]

"Tightening suggests a slowdown in liquidity and demand ahead, which is not good for the cyclicals, particularly those commodities in which China is the marginal producer -- things like aluminium and iron ore," said Andrew Driscoll, head of resources research at broker CLSA.

The surprise move ended five quarters of ultra-loose monetary policy since the fourth quarter of 2008, and could herald further steps to rein in China's rising asset prices, including raising interest rates.

Resources stocks were hard hit with Chalco (2600.HK) (601600.SS), the country's largest aluminium maker, were down 5.9 percent at 0353 GMT.

The prospect of higher interest rates could lift the value of the yuan, which in turn would raise the price of China commodities in dollar terms, making them less competitive in global markets.

The property sector also dropped, with China Resources Land (1109.HK) down as much as 6.2 percent before steadying at HK$15.92, down 4.7 percent at 0354 GMT.

"On the buyers' front, they may be getting this message that maybe we should not buy now and [instead] wait for any policy initiatives," said Eric Wong, head of Asia Real Estate Research at UBS. "So there is a potential withdrawal of demand."

MIXED BLESSING FOR BANKS

Chinese banks also dropped, with ICBC (1398.HK) (601398.SS), the world largest lender by market capitalisation, down 3.9 percent in Shanghai and 2.9 percent in Hong Kong at 0357 GMT.

The impact on banks may be less extreme than on other sectors, however. Indeed, the reserve requirement rise could be a long-term positive for China's biggest lenders as the policy shift may signal a future move to lift interest rates, which would boost bank profits.

In a note on Wednesday, Citi identified China Construction Bank (0939.HK), China Merchants Bank (600999.SS)(3968.HK) and China Citic Bank (0998.HK)(601998.SS) as the biggest possible beneficiaries from higher net interest margins.

"The impact of tightening on earnings is actually a positive," said May Yan, China banking analyst at Nomura. "Our house view is there will be three 27 basis point interest rate rises this year, starting from the first quarter."

Continued reserve requirement increases could hurt smaller banks, however, which have less cash on hand and could be forced to cut back on lending, Citi said in its note.

China's policy shift will raise the reserve ratio requirement to 16 percent for big banks and 14 percent for smaller financial institutions.

It was highly unlikely the early Chinese domestic tightening would derail the economy or corporate fundamentals, said Jerry Lou, China strategist for Morgan Stanley.

Chinese equities listed in Hong Kong were more sensitive to U.S. tightening than Chinese tightening, he said, adding: "We will watch for signs of U.S. tightening more closely." (Additional reporting by Michael Flaherty, Lee Chyen Yee and Joe Chaney; Editing by Don Durfee and Chris Lewis)