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UPDATE 2-China's Tencent shrugs off impact of play-time limits; shares rise

* Tencent says play-time limits target small portion of user base

* Does not expect material impact on financial results

* Shares reverse early losses to rise more than 1 percent (Adds lawyer quote, details)

HONG KONG, July 5 (Reuters) - Tencent Holdings Ltd has shrugged off concerns that a move to limit play time for some users of its top-grossing "Honour of Kings" game could hurt its bottom line, saying those targeted make up only a small portion of its overall user base.

The company said on Sunday "Honour of Kings" players below 12 years of age would be limited to one hour of play time each day, while those aged 12 to 18 years would be limited to two hours a day, responding to concerns from teachers and parents that some children were addicted to the game.

Shares of Tencent, China's biggest gaming and social media firm by revenue, fell nearly 4 percent this week up to the close of trade on Tuesday, wiping some $12 billion off its market value. The stock was up more than 1 percent on Wednesday, reversing earlier losses, and compared with a flat broader market. It is up more than 40 percent this year.

China's communist party mouthpiece, the People's Daily, has also criticized Tencent twice this week, describing the "Honour of Kings" game as poison and calling for tighter regulatory controls of online games, which further weighed on its shares.

"(Those) under 12 years old constitute a small proportion of our total user base and a smaller percentage of our paying user base. We do not expect these measures will have a material impact on our overall financial results," Tencent said in an email response to a Reuters request for comment.

Tencent also said it would step up the requirement of real-name registration for all users and upgrade a parental-control platform rolled out earlier this year that makes it easier for parents to monitor their children's gaming account activities.

It was not immediately clear if Tencent, which has a portfolio of over 200 games, can effectively impose the play-time restrictions or how easy it will be for players to skirt the measures.

Chinese gaming industry database CNG estimates "Honour of Kings" raked in revenue of more than 5.5 billion yuan ($810.47 million) in the first quarter, accounting for nearly half of Tencent's smartphone games revenue of 12.9 billion yuan in the period.

Tencent, one of Asia's most valuable firms with a market value of HK$2.6 trillion ($333 billion), has spread its tentacles into nearly every facet of Chinese life, making it vulnerable to any regulatory measures imposed by Beijing at a time of growing political risk in China.

Chinese regulators have launched a sweeping crackdown on what it deems inappropriate content on the internet, including closing celebrity gossip websites and restricting what people can post, forcing individuals and companies to walk a fine line to address government concerns.

The popularity of "Honour of Kings" has prompted scores of complaints from teachers and parents worried that children are becoming addicted to the game, for which half of users are below 24 years of age, according to Chinese mobile data firm Jiguang.

A wider or more heavy-handed crackdown by authorities on the online gaming sector could pose significant challenges for China's tech champions.

"The question now is whether public criticism will be followed up with state regulation of the thriving online gaming market in China," said Paul Haswell, a partner at law firm Pinsent Masons, who specializes in technology.

"Seeing that market so effectively shut down, either by public criticism or state intervention, is a big shock to China's gaming industry."

In its commentaries, the People's Daily cited examples of addiction where teenagers had stolen money to spend on game features and also a case of alleged suicide.

Honor of Kings, a fantasy multiplayer role-playing battle game, is the most popular mobile game in China with around 55 million daily active users, more than Pokemon Go at its peak.

($1 = 7.8077 Hong Kong dollars) (Additional reporting by Donny Kwok, Writing by Anne Marie Roantree, Editing by Christopher Cushing)