UPDATE 1-EU sets steel import duties to counter Chinese subsidies

* Anti-subsidy duties add to existing anti-dumping tariffs

* Beijing "strongly" questions decision

* Hot-rolled steel used for ships, gas containers, pipes (Updates with EU Trade Commissioner, Chinese Commerce Ministry)

BRUSSELS, June 9 (Reuters) - The European Union has set duties of up to 35.9 percent on imports of hot-rolled flat steel from China to counter what it says are unfair subsidies in a finding challenged by Beijing.

The European Commission, which conducted an investigation on behalf of the 28 EU members, found a number of Chinese companies had benefited from preferential lending from state-owned banks, grants, tax deductions and the right to use industrial land.

"We are continuing to act, when necessary, against unfair trading conditions in the steel sector, and against foreign dumping," EU Trade Commissioner Cecilia Malmstrom said in a statement.

She added that she hoped global discussions on steel overcapacity would eventually convince China to end unfair schemes to ensure a level playing field for all steel producers.

China's Commerce Ministry said it "strongly" questioned the legitimacy of the EU decision, adding the European Commission had ignored the fact China's steel exports to Europe had declined in 2016. It said it would take all necessary measures to protect the interests of Chinese firms.

The EU had already set in place anti-dumping duties, to counter excessively low prices, which it has now adjusted to a range of between zero and 31.3 percent.

Hot-rolled flat steel is used in shipbuilding, gas containers, pressure vessels, tube and energy pipelines.

The targeted companies include Benxi Group, with overall anti-dumping and anti-subsidy duties of 28.1 percent, Hesteel Group, with a rate of 18.1 percent, and Jiangsu Shagang at 35.9 percent.

The duties, applicable for five years, will take effect from Saturday, the EU's official journal said.

The EU has taken over 40 anti-dumping decisions to aid European steel producers, with measures on cold-rolled flat steel and stainless steel from China. It also has an ongoing investigation into hot-rolled steel imports from Brazil, Iran, Russia, Serbia and Ukraine. (Reporting By Philip Blenkinsop; Additional reporting by Josephine Mason in Beijing,; Editing by Robert-Jan Bartunek and Mark Potter)