UPDATE 2-Spain sets power, gas network price structure

(Adds analyst, updates shares)

MADRID, Feb 29 (Reuters) - The Spanish government on Friday set a new pricing structure guaranteeing returns for the electricity and gas distribution sectors, sending shares in Red Electrica (REE.MC) and Enagas (ENAG.MC) higher.

An Industry Ministry statement said Spain's energy watchdog CNE would define operational norms which would guarantee a profitability level of 7.71 percent on average.

Companies will be able to boost returns if they can cut costs while maintaining standards, but they will have to hand half of the improvement back to consumers.

In addition, the network operators will receive a bonus or be penalised by up to 2 percent depending on the availability of their installations.

"The main favourable element of the system is that it guarantees returns for investors," said Nicolas Lopez, head of reasearch at M&G Valores. "The content of the system was already more or less known, but now any uncertainty over when it would be approved has disappeared."

The new structure will only affect installations that are started after Jan. 1 2008, the government said after a weekly cabinet meeting.

By 1418 GMT, shares in power grid operator Red Electrica were at 41.50 euros, up 0.79 euros or 1.94 percent. The share was off an earlier high of 42.49 euros but still bucked the trend in the Madrid bourse's benchmark Ibex-35 index .IBEX, which was down 0.57 percent.

Gas transport company Enagas's shares rose as much as 3.4 percent to 20.51 euros, but was later up 10 euro cents, or 0.5 percent, at 19.93 euros.

The statement said the new structure responded to the need for a "hefty investment cycle" in the next 10 years, to spur investment in line with targets set out in a plan for the gas and electricity sectors from 2008 through 2016. (Reporting by Clara Vilar and Joe Ortiz; Editing by Catherine Evans)