WRAPUP 1-China stocks, yuan fall after quake, reserve hike

** China stocks down over 2 percent after Sichuan earthquake

** Yuan falls versus dollar, money market rates edge up, due also to reserve hike

** Monetary tightening to have longer-term impact than quake

By Lu Jianxin

SHANGHAI, May 13 (Reuters) - China's stocks fell in volatile trade, the yuan slipped against the dollar and borrowing costs on China's money market edged higher on Tuesday after a strong earthquake on Monday in the southwestern province of Sichuan, where the death toll neared 10,000.

The markets were also assessing the impact of a hike in banks' reserve requirement ratios by the central People's Bank of China, the fourth so far this year, in response to a rebound in consumer price inflation that remains near 12-year highs.

"Market conditions have become very uncertain and volatility is expected in coming weeks as investors evaluate all these factors," said economist Jin Dehuan at Shanghai Securities and Futures Institute.

"Overall, the impact of the earthquake on the markets should be temporary, while the monetary tightening stance should have much longer-term consequences," he said.

The central bank announced after Monday's market close that it would raise banks' reserve requirement ratios by 0.5 percentage point, bringing the rate for large banks to a record 16.5 percent, as it seeks to keep inflation under control.

The announcement came shortly after the government said annual consumer price inflation quickened to 8.5 percent in April from 8.3 percent in March, lingering near a 12-year high of 8.7 percent in February and sparking worries of more monetary tightening, possibly including an interest rate hike.

INSURERS HURT, BUILDERS RISE

China's benchmark stock index .SSEC was down 2.45 percent to 3,538.111 points in late morning trade after falling as much as 3.27 percent early.

The Shanghai and Shenzhen stock exchanges suspended trade in 66 shares of companies in the Sichuan area, the largest trading suspension in the bourses' 18-year history.

"Sichuan firms would surely be hurt by the quake," said Huang Yan, fund manager at Guotai Fund Management Co. "Insurers, especially those with property businesses, will be hit hard, although construction-related issues should benefit."

Top insurer China Life Insurance (601628.SS) was down 5.15 percent to 31.49 yuan after diving as much as 7 percent at the opening. But Hebei Taihang Cement (600553.SS) jumped its 10 percent daily limit to 6.33 yuan.

On the government bond market, traders said little trade was done in early morning. However, the weighted average rate of seven-day bond repurchase agreements CN7DRP=CFXS, the barometer of China's short-term liquidity, rose 11 basis points to 3.3139 percent.

In the foreign exchange market, the yuan dipped to 6.9915 against the dollar CNY=CFXS from Monday's close of 6.9882 after the central bank set a slightly lower mid-point to keep the Chinese currency stable, as it typically does immediately after a monetary tightening.

Dealers said the reserve ratio hike may briefly slow the yuan's rise this week because the central bank has, since last August, required many banks to settle reserve changes in dollars rather than in yuan, temporarily boosting dollar demand.

Several dealers, however, maintained their forecasts for the yuan to rise 8.5 to 10 percent for all of 2008, as China uses the yuan's exchange rate as one of its weapons to fight inflation. (Additional reporting by Shanghai newsroom; Editing by Edmund Klamann)