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UPDATE 2-Zhongyuan Bank's HK debut muted as investors wary of China's bad debt

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* Shares close at HK$2.49 vs HK$2.45 IPO price

* Retail demand accounted for 0.4 times shares on offer

* Performance reflects tepid reception for new China bank listings (Adds closing performance, comments, recent bank IPOs)

HONG KONG, July 19 (Reuters) - China's Zhongyuan Bank Co Ltd managed a marginal gain on its stock's trading debut on Wednesday, reflecting tepid demand for shares of small banks in a country laden with bad debt.

Zhongyuan Bank, the largest city commercial lender in central China's Henan province, is among several Chinese lenders to public in Hong Kong in recent months to strengthen balance sheets amid a lending boom in the world's second-largest economy.

But the deals have met with a weak reception in the city as concerns grow over a surge in non-performing loans and the effect of an economic slowdown on bad debt. With a slew of options from already-listed banks in Hong Kong trading at lower valuations, several investors saw no need to buy.

"There wasn't a lot of demand for this IPO, especially from retail. The valuation is not quite good compared with banks already trading in the secondary market," said Jasper Chan, assistant manager of corporate finance at Hong Kong broker Phillip Securities. "The bad debt is also a concern."

The stock closed up 1.6 percent at HK$2.49 having peaked at HK$2.58. That compared with the HK$2.45 price of its $1 billion initial public offering (IPO), and the 0.6 percent rise in the Hang Seng benchmark share price index.

Its performance mirrored peers.

Guangzhou Rural Commercial Bank Co Ltd, which went public in June in a $1 billion deal, is up 0.4 percent from its IPO price, underperforming the 3 percent rise in the Hang Seng index. The 7.5 percent rise in Jilin Jiutai Rural Commercial Bank Corp Ltd from its January IPO is also below the 17 percent rise in the broader market over the same period.

The weak performance comes ahead of another lender listing - Bank of Gansu Co Ltd, which plans to raise $700 million in an IPO later in 2017, reported Thomson Reuters publication IFR.

RETAIL SNUB

Zhongyuan Bank priced 3.3 billion shares near the bottom of a HK$2.42 to HK$2.53 marketing range. Almost all of the stock was new issuance, with the remainder sold by 62 state-owned shareholders on behalf of China's National Council for Social Security Fund.

Demand from retail investors - who have a significant influence over first-day trading in Hong Kong - accounted for 0.4 times the number of Zhongyuan Bank shares on offer in the IPO, the lender said in a securities filing on Tuesday, underscoring weak appetite. The institutional tranche was "moderately" oversubscribed.

CCB International, CITIC, CLSA, CMB International and JP Morgan acted as joint sponsors of Zhongyuan Bank's IPO, with BoCom International, Central China International Capital, First Capital Securities, GF Securities, Haitong International and SPDB International also acting as joint bookrunners.

The banks stand to jointly earn up to $23.3 million in fees, equivalent to a 1 percent underwriting commission, a 0.8 percent incentive fee and a 0.43 percent discretionary fee, according to the IPO prospectus. (Reporting by Elzio Barreto and Julie Zhu; Editing by Stephen Coates and Christopher Cushing)