UPDATE 1-China regulator to run stress tests on banks - paper

* Regulator urges banks to act to curb bad loans

* Move comes after banks' bad loan ratios reach 2-year high

* Urges caution on lending to local govt, troubled industries

(Updates details, adds background)

SHANGHAI, April 4 (Reuters) - The China Banking Regulatory Commission (CBRC) has said it will conduct regional and national stress tests after banks saw a spike in bad loans last year, the Shanghai Securities News reported on Friday, reflecting growing creditworthiness concerns.

"All (CBRC) offices, supervisory departments, must organise stress tests of banking institutional organisations in a timely manner so as to analyse the impact of unfavourable situations in individual banks and the banking system and urge banking financial institutions to make emergency plans," the regulator was quoted as saying in guidelines sent to banks in March.

Chinese banks' non-performing loans (NPL) ratio rose to its highest level in two years in the last three months of 2013, to 1.0 percent, the CBRC reported in February.

A corporate bond default and the near-collapse of two high-profile shadow-banking investment products earlier this year was further evidence of growing financial strains afflicting the economy.

"Banks should study the risk situation in key regions, focus on certain industries and on important clients," the paper quoted from the CBRC document.

Chinese banks are now dealing with the aftermath of the huge lending binge that policymakers unleashed to soften the impact of the global financial crisis in 2008.

The CBRC's 2014 guidelines also urged banks to curb lending to local government financial vehicles (LGFVs) and industries facing overcapacity, including property and steel-trading firms.

"In particular, it is necessary to tighten supervision and control of spillover of risk between businesses in and off balance sheets and between the banking and other systems," the guidelines were quoted saying.

(Reporting by Fayen Wong and Lu Jianxin; Editing by Eric Meijer)