* Prelim decision found lower Chinese subsidies than expected
* U.S. will issue first ruling on anti-dumping duties in May
* China trade ministry says duties hurt US, China interests
* Shares of China solar panel makers rally
* SolarWorld CEO confirms similar case prepared in EU
* Imports of solar cells, panels from China hit $2.8 bln in 2011
WASHINGTON/NEW YORK, March 20 (Reuters) - The United States dealt a blow to U.S. solar panel manufacturers and boosted shares in Chinese rivals when it imposed unexpectedly low duties on imports from China, though the move still drew fire from China industry representatives.
The action, made public late on Tuesday, adds to trade tension between the world's two largest economies and threatens cooperation in the burgeoning clean-energy sector, which both say they want to promote.
Energy analysts had expected Chinese imports of solar panels to be hit with preliminary duties of 20 percent to 30 percent, but the rates announced on Tuesday ranged from just 2.90 percent to 4.73 percent - although these could be raised in future.
"If the U.S. finally decides on the tariff, U.S. solar energy costs will increase sharply and shrink the energy market," the China Chamber of Commerce for Import and Export of Machinery and Electronic Products said in a statement.
Tuesday's decision was the latest salvo from Washington in its efforts to help the nascent U.S. clean energy industry compete against China's fast-growing companies, the leading suppliers to the global solar market.
"I welcome that the unfair trading practices of the Chinese (companies) have been noticed," Frank Asbeck, Chief Executive of SolarWorld told Reuters on Wednesday. His company's U.S. arm had led the industry coalition seeking import relief.
Asbeck confirmed that a similar case was being prepared in the European Union, but declined to give details.
Rapid expansion by Chinese companies has created a glut of solar panels that drove prices down sharply last year, pushing some weaker U.S. companies, including Solyndra, into bankruptcy.
President Barack Obama, running for re-election in November, has promised to crack down on unfair Chinese trade practices and last week challenged China's export restrictions on critical "rare earth" industrial materials in a case filed with the European Union and Japan at the World Trade Organization.
China's Trade Ministry defended Chinese solar panel makers by saying they won their competitive advantage from continuous cost-cutting and research into advanced production technology.
"U.S. restrictions on Chinese solar cell products damage the interests of both China and the United States," the ministry said in a statement on its website, adding that bilateral cooperation in the new energy sector would be affected.
It urged the United States to "protect the stable and harmonious development of Sino-U.S. trade relations".
GOOD FOR CHINA, BAD FOR EUROPE
Shares in SolarWorld and peer Q-Cells fell 2.2 percent and 5.9 percent, also burdened by news that German solar company Solarhybrid had filed for insolvency late on Tuesday.
"The duties imposed yesterday are much lower than SolarWorld's demands as well as analyst expectations. We see this decision as negative for SolarWorld and the European manufacturers," said LBBW analyst Erkan Aycicek.
Chinese solar firms rose, with GCL-Poly Energy as much as 4.8 percent higher, and Solargiga Energy Holdings up nearly 3 percent, beating a flat broader index and tracking gains in Wall Street peers overnight.
"Punitive tariffs of less than 5 percent would be manageable for Chinese solar makers given that their panels are sold 25 to 30 percent cheaper than U.S.-made panels," said Min Li, head of alternative energy at research firm Yuanta Securities.
Chinese solar panel makers depend on exports for more than 90 percent of their earnings and the United States is their second-largest market, after Europe.
The Coalition for American Solar Manufacturing, a U.S. industry group that has complained massive Chinese subsidies were driving them out of business, said it expected the U.S. Commerce Department to uncover more subsidies and unfair pricing practices as it continued a probe in the coming months.
It said this would result in higher final duties.
"Today's announcement affirms what U.S. manufacturers have long known: Chinese manufacturers have received unfair and WTO-illegal subsidies," said Steve Ostrenga, chief executive officer of Helios Solar Works in Milwaukee, Wisconsin.
China accounts for 114 of the 283 anti-dumping and countervailing duty orders the United States has on foreign goods. The Obama administration has imposed more than 50 anti-dumping and countervailing duty orders since taking office in January 2009, including about 40 against Chinese goods.
The United States imported $2.8 billion worth of solar cells and panels from China in 2011, up sharply from about $1.2 billion just a year earlier, according to industry estimates.
CHINESE COMPANIES FEEL 'VINDICATED'
Chinese producers and U.S. companies opposed to the duties said the preliminary decision on Tuesday belied charges that China was flooding its solar sector with subsidies.
"We're pleased and in large part feel vindicated," Robert Petrina, managing director of Yingli Green Energy's U.S. business said.
Jigar Shah, president of a coalition of U.S. solar panel sales and installation companies which were opposed to duties, called the ruling an "initial victory for America's solar industry and its 100,000 employees" because it would not significantly raise prices for solar products and hurt demand.
The Commerce Department set a preliminary duty of 2.90 percent on SunTech Power Holdings, the world's biggest producer of photovoltaic solar panels, and a preliminary duty of 4.73 percent on Trina Solar, another major Chinese producer, industry officials said. All other Chinese solar panel producers and exporters received a duty rate of 3.59 percent.
Importers will have to post bonds or cash deposits based on these while the department continues its investigation.