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UPDATE 2-China c.bank targets rural sector in reserve requirement cut for some banks

some banks@

* China to lower RRR by 50 bps for some banks

* Targets banks in farming sector and SMEs

* PBOC says monetary policy has not changed, liquidity ample

(Adds details, comments)

BEIJING, June 9 (Reuters) - China's central bank said it will cut the level of reserves banks must hold for those that have sizeable loans to the farming sector and small- and medium-sized firms, a move the government had flagged in May to support the economy.

The People's Bank of China (PBOC) said the targetted 50-basis-point reduction in the reserve requirement ratio (RRR), effective from June 16, would also apply to financial firms that disburse consumer or auto loans.

The announcement puts into action a promise by the cabinet to lower the RRR for more banks on May 30. The move underscores the government's intent to selectively relax policy in sections of the real economy deemed most in need of assistance, areas the PBOC described as "weak links" in its statement on Monday.

The nuanced approach is to avoid increasing credit supply for all businesses, which critics fear would stoke speculation or wasteful investment in the world's second-biggest economy.

"The selective easing is meant to be a 'smart bomb' to deliver liquidity to specific areas in the real economy, yet without changing the basic tune of the monetary policy stance," Credit Suisse said in a note to clients.

This is the second time since April that China's central bank has acted on the instructions of senior Chinese leaders to lower the RRR for some banks.

The last time it cut the RRR was on April 25, a reduction of between 50-200 basis points that applied only to rural banks.

In a sign that authorities do not want any one bank to enjoy too big a cut in its RRR, the central bank said that banks which already had their reserve requirements relaxed on April 25 would not be eligible for Monday's reduction.

"This targeted reduction is to encourage commercial banks to allocate more funds to areas that need support in the real economy," the central bank said on its website, adding that it wishes to see a smooth transmission of monetary policy.

It said the "basic" direction of China's monetary policy has not changed, and that liquidity supply in the country's banking system is ample and will be kept at an appropriate level.

Banks' reserve requirements are neither uniform or transparent in China, and the central bank did not say where ratios stand after the latest change. Smaller banks tend to have lower ratios than major banks, which had an RRR of 20 percent in 2012.

MONETARY POLICY "BASICALLY" THE SAME

China's economy has shown recent signs of stabilizing, but investors are speculating that the authorities may announce more stimulus measures, particularly to prevent a sharp deterioration in the property market.

This is even as China allows the yuan to show surprising buoyancy in the past few days.

Analysts differed in their estimates about the impact of the latest RRR cut, and what it means for China's next policy move.

Nomura Bank estimated that Monday's move would inject 95 billion yuan ($15.2 billion) into the economy, while Capital Economics said only about 50 billion yuan would be added.

"This move makes an RRR cut for all banks less likely in the near term," Mark Williams, an economist at Capital Economics, said in a note, adding that China was still fighting the urge to roll out a broad stimulus.

Worried that China's cooling economy could swoon further if authorities do not act more forcefully, some analysts have called on Beijing to cut the RRR for all banks in the country.

Even the China Securities Journal, an official newspaper, joined the chorus on Monday. A research department under the paper argued in an article that a lower RRR was needed for all banks because falling capital inflows into China have squeezed credit supply.

The central bank said Monday's RRR cut applies to two-thirds of China's city commercial banks, and 80-90 percent of rural banks whose business are not restricted to counties.

It specified that banks are eligible for a lower RRR if their new loans to the farm sector last year exceeded 50 percent of total new lending, and if their outstanding agricultural loans exceed 30 percent of their total outstanding loans.

Alternatively, banks also qualify for less stringent reserve requirements if their new loans to small firms last year exceeded 50 percent of total new loans, and if such outstanding loans account for more than 30 percent of total outstanding loans.

Zhang Zhiwei, a Nomura economist, argued that Chinese authorities have added a "significant" sum of 545 billion yuan to the economy this year through a series of small easing steps.

"We continue to expect more policy easing measures to come in the next few months," he said.

A Reuters poll in April predicted China's economic growth could sink to a 24-year low of 7.3 percent this year.

($1 = 6.2397 Chinese yuan)

(Editing by Jacqueline Wong)