UPDATE 1-Australia ends short-selling ban on financials

(Adds analysts' comment)

SYDNEY, May 25 (Reuters) - Australia's market regulator has lifted a ban on covered short-selling of financial stocks put in place amid a global market meltdown last year, citing a stabilising in market conditions.

The Australian Securities and Investments Commission (ASIC) said the lifting takes effect from the opening of trade on Monday, but it retained the right to reimpose it if it thought such a move necessary.

ASIC "has reviewed market conditions and considers that the balance between market efficiency and potential systemic concern has now moved in favour of the ban being lifted," it said in a statement.

"ASIC will not hesitate to reimpose the ban immediately and without consultation if it considers market conditions warrant such action."

The lifting of the ban was not expected to hit financial stocks such as Macquarie Group (MQG.AX), dealers said.

"I just don't think it will have that big an effect, at least not initially," said Peter Wright, a dealer at Burrell & Co.

"Especially over the next few days. You've got both the U.S. and the UK not trading this evening, so it wouldn't surprise me if we were quite quiet today. There's not this torrent of selling pressure coming into the market."

ASIC first barred short-selling of all stocks for 30 days in September, after the United States, Britain and other European did the same, trying to stem the global market meltdown.

It lifted its ban on non-financial stocks in November, but controversially extended it for financial stocks, including property trusts and conglomerate Wesfarmers (WES.AX), to May 31.

Critics have said the ban did little to stabilise the market for financial stocks, and added to pressure on those stocks that were not covered by the short-selling ban.

Citi strategist Graham Harman said the overseas appetite for opening new shorts that existed three months ago, had faded with stronger Australian consumer sentiment, a better than expected housing market and a return of risk tolerance globally.

"The lifting of the ban is itself a sign that ASIC, the Reserve Bank of Australia and the government collectively believe that the crisis is now past the 'system-threatening' stage. That makes it more a buy signal than a sell signal," Harman said.

He did not expect listed property trusts to suffer, even if investors were expecting the property trusts to raise new equity, citing damage already done to their share prices and a lack of credit available for many short sellers. (Reporting by Sonali Paul and Mette Fraende)