* New Chinese rivals chip away at liquid crystals dominance
* Banks on cancer drug Bavencio, to spend more on trials
* Sees 2017 adjusted earnings of 4.4 bln-4.6 bln euros (Adds analyst, CFO quotes, details on crystals, cancer drug)
FRANKFURT, May 18 (Reuters) - Merck KGaA's sales of liquid crystals used in flat-screen TVs are now expected to decline this year, making the German company more reliant on its new cancer immunotherapy drug to fuel growth.
The family-controlled firm said on Thursday that sales of its performance materials would fall slightly in 2017, after adjusting for currency swings, having previously forecast growth for the division that is the world's leading supplier of liquid crystals ahead of Japan's JNC Corp and DIC Corp.
Under pressure from Chinese rivals, Merck KGaA's market share in liquid crystals will level off at between 50 percent and 60 percent over the next few months, down from clearly above 60 percent, Chief Financial Officer Marcus Kuhnert said.
"The Chinese have progressed rather dynamically and they've also clearly advanced over the past two years in terms of quality," Kuhnert told reporters.
Berenberg analyst Alistair Campbell said the trend in the liquid crystals market, which is a major driver of profits for the German company, was not expected to reverse.
Merck's shares were down 1.1 percent to 110.35 euros by 0947 GMT after dropping to 109.74 earlier, underperforming the broader German market which was down 0.9 percent.
Overall, the company said it expected 2017 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 4.4 to 4.6 billion euros compared with last year's 4.5 billion euros ($5 billion), supported by materials and equipment for biotech labs as well as high-tech chemicals for electronics.
After years of development setbacks in pharmaceuticals, Merck is pinning hopes on its cancer drug Bavencio, also known as avelumab. It belongs to a new class of drugs that stop some tumors from hiding from the immune system, similar to Merck & Co's Keytruda or Roche's Tecentriq.
U.S. regulators granted approval this year for the drug's use in two relatively small groups of patients, with advanced bladder cancer and a rare skin cancer.
Merck KGaA and partner Pfizer have taken the drug to an advanced phase of testing on various other tumors affecting the lungs, ovaries and kidney, among others, and Merck said research costs would increase in the coming quarters.
The company's first-quarter adjusted earnings (EBITDA) rose 14.5 percent to 1.24 billion euros, inflated by an advance drug license payment, and were slightly above market expectations. ($1 = 0.9003 euros) (Editing by David Clarke)