UPDATE 3-China Everbright shines on debut day, banks attractive

* Shares close up 18 percent versus forecast 5 pct

* Performance shows continued interest in banking stocks

* Further gains to be muted by concerns over assets-analyst (Adds closing share price, link to Reuters Insider interview)

By Samuel Shen and Soo Ai Peng

SHANGHAI, Aug 18 (Reuters) - China Everbright Bank (601818.SS) shares closed up 18 percent on their Shanghai debut, trumping first-day performance forecasts for the $3 billion IPO, boding well for at least $20 billion in China bank fundraising in the pipeline.

The share price gains easily beat those for Agricultural Bank of China (601288.SS) (1288.HK), the world's biggest IPO. AgBank's Shanghai shares rose less than one percent on their first day of trade in mid-July and have stagnated since. [ID:nTST000342]

Analysts attributed Everbright's strong performance to investor's optimism about the smaller Chinese banks and their strong earnings reports as well as Everbright's IPO pricing at a lower valuation than many of its peers.

"Everbright's debut surprised me," said Dorris Chen, analyst at BNP Paribas in Shanghai.

"We're in the earnings season, and we do see some very punchy numbers from smaller banks such as China Merchants (3968.HK), Minsheng (1988.HK) and Citic Bank (0998.HK)(601998.SS), and Everbright. Because it's a new listing, so the number has to be good."

The bank launched its offering in market conditions significantly different from just over a month ago when AgBank launched its IPO, with the Shanghai stock index .SSEC rising 10 percent in the period.

"Investor sentiment towards banks has improved, as there's less concern over further monetary tightening, while bad loan risks will vanish if economic growth is healthy," said Yu Wei, analyst at Guoyuan Securities in Shanghai.

"Banking stocks also appeal to some investors because their valuations are at historic lows."

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StarMine comparative table: r.reuters.com/qep45n

Graphic on Chinese banks' fundraising:

here

Graphic on bank shares' first-day performance:

here

For other stories on Everbright IPO: [ID:nTOE67H02H]

For related NEWSMAKER: [ID:nTOE67800K]

Reuters Insider show [ID:nRTV135605]

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GOOD SIGN

The positive result bodes well for other lenders that are lining up to ask investors for tens of billions of dollars in additional funds to shore up their balance sheets after a lending binge last year left their coffers depleted.

Analysts surveyed by Reuters had estimated Everbright shares would rise 5 percent or less on their first day of trade, saying worries over the banking sector's health could sap some demand among investors towards China's No. 11 lender. [ID:nTOE67F082]

In the event, Everbright Bank's shares closed at 3.66 yuan ($0.54), up 18 percent from the IPO price of 3.10 yuan. The broader Shanghai Composite Index .SSEC fell 0.2 percent. [.SS]

Chairman Tang Shuangning, for whom the listing marked the culmination of a three-year toil to transform Everbright into a healthy institution, marked the occasion by reciting a poem by Mao Zedong and giving exchange officials a gift of calligraphy, a craft for which he is well known.

Tang will likely be pleased with his bank's share performance, which came after it set the IPO price at the top of an indicative range of 2.85-3.10 yuan that itself was lower than many analysts had expected.

Everbright Bank's IPO, which could raise as much as $3.2 billion if it exercises a greenshoe, or over-allotment option, is set to be China's second-biggest this year, after AgBank's world record $22.1 billion offering.

The lender is the last of China's major national banks to go public after Beijing commenced in 2006 a major reform of the country's bad loan-ridden banking sector.

Everbright Bank's debut is being watched closely as a barometer of investor enthusiasm toward banking shares amid rising concerns over lenders' asset quality due to a weak real estate market and massive local government borrowings.

All major lenders, including Bank of China (3988.HK)(601988.SS) and China Construction Bank (0939.HK)(601939.SS), are tapping investors for additional funding to shore up their balance sheets.

In the latest such move, the securities regulator is set to review Industrial and Commercial Bank of China's (1398.HK) (601398.SS) planned 25 billion yuan convertible bond issue on Wednesday.

With more than 400 branches across the country, Everbright Bank is controlled by Central Huijin, the investment arm of China's $300 billion sovereign wealth fund. Hong Kong-listed China Everbright (0165.HK), the Beijing-based financial conglomerate, directly owns 6.4 percent of Everbright Bank, company data showed. ($1=6.792 Yuan) (Writing by Jason Subler; Additional reporting by Anita Li; Editing by Jacqueline Wong and Valerie Lee)