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UPDATE 1-Tencent Q4 income growth slows on higher advertising spend

* Tencent Q4 net income up 12.9 pct to 3.91 bln yuan

Q4 revenue rose 40 pct to 16.97 bln yuan

* WeChat global monthly active users rose to 355 million, up 5.7 pct from Sept

* Selling and marketing expenses climbed 39 pct q/q to 2 billion yuan

(Recasts, adds details on WeChat, quotes, context)

By Paul Carsten and Yimou Lee

BEIJING/HONG KONG, March 19 (Reuters) - Tencent Holdings Ltd posted the slowest quarterly income growth in almost two years as it spent big on attracting more users to its flagship mobile chatting app and its e-commerce sites amid intense competition with Alibaba Group Holding.

China's largest listed Internet firm posted on Wednesday a 12.9 percent year-on-year rise in net income for the fourth quarter of 2013, in line with forecasts.

The increase was the lowest since the first quarter of 2012, as selling and marketing expenses jumped 39 percent quarter-on-quarter, largely due to advertising for its WeChat, or Weixin, app and various e-commerce sites.

"Weixin is evolving from a pure communications service into a multi-functional platform," Tencent said in its earnings statement.

Tencent now plans to "invest in long term opportunities such as online video, online payment and WeChat international expansion," added Chief Executive Pony Ma.

Tencent is leveraging the popularity of WeChat, which is China's most widely used app, to compete with e-commerce giant Alibaba for customers. Earlier this month, Tencent partnered with China's second largest online retailer JD.com to further boost its mobile-based retail services.

QR CODE CONTROVERSY

Both Tencent and Alibaba recently said they would launch virtual credit cards that use QR codes, similar in function to a bar codes that are scanned by smart phones to process payments in partnership with China CITIC Bank Corp .

This foray into financial services has, however, drawn the ire of China's traditional banking sector. This week, the central bank said it was considering regulations that would significantly limit the use of third-party payment systems offered by Tencent and Alibaba.

The central bank also suspended the use of QR code payments, a service analysts had said was going to be one of the most attractive features of WeChat.

Analysts, however, said they expect the ban will be temporary.

"Although Tencent and Alibaba might be enemies on the surface they're going to be united in trying to convince the banks that it should be an open market, and I think ultimately they will win," said Michael Clendenin, managing director of Shanghai-based RedTech Advisors.

"But it's not going to happen tomorrow, it could take several months for them to work through this regulation," he said.

WeChat rules over China's smartphone screens, with a penetration rate of 76 percent in January, according to Beijing-based data firm iResearch.

Tencent said global monthly active users of WeChat rose 5.7 percent in the fourth quarter to 355 million, its slowest rate of quarterly growth as the company revised up its user numbers from the previous quarter.

Tencent's net income rose to 3.91 billion yuan ($631.46 million) in the three months ending December, as revenues climbed 40 percent to 16.97 billion yuan ($2.74 billion).

Tencent shares were down 1.82 percent at market close on Wednesday, versus a 0.07 percent fall in the Hang Seng Index . ($1 = 6.1920 Chinese Yuan)

(Reporting by Paul Carsten in BEIJING; Additional reporting by Yimou Lee in HONG KONG; Editing by Miral Fahmy)