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UPDATE 3-Australia seeks to calm investors over China coal ban

Colin Packham and Muyu Xu

* China bans Australian coal at northern port - Reuters

* Australian dollar, resource stocks under pressure

* Prime minister seeks to reassure markets

* Policy on Australia coal "very fuzzy" - port official (Adds China comments)

SYDNEY/BEIJING, Feb 22 (Reuters) - Australia's prime minister sought to ease fears on Friday of a further rift in ties to China following a ban on coal imports at the northern port of Dalian that knocked coal exporters and the local dollar.

The Australian currency fell more than 1 percent to a 10-day low of $0.7070 on Thursday after Reuters reported that customs at the Chinese port had banned imports of Australia's biggest export earner since the start of February.

China is the largest buyer of Australian coal, taking 89 million tonnes last year, worth A$15 billion ($10.7 billion), according to data from the Australian Bureau of Statistics.

Dalian's move came after major ports elsewhere in China prolonged clearing times for Australian coal and stoked concerns that Beijing is using trade to punish Australia amid a recent souring of bilateral ties.

However, Morrison said on Friday there was nothing to suggest the move was out of the ordinary. The country has asked its ambassador to China to seek urgent clarification.

"People should be careful about leaping to conclusions about this. This is not the first time that on occasion local ports make decisions about these matters," Morrison told reporters in Auckland.

Tensions arose in 2017 when Canberra accused Beijing of meddling in its domestic affairs, and the relationship suffered another setback last year when Australia banned China's Huawei from its 5G broadband network.

Australia's Minister for Trade, Simon Birmingham, said delays to exports of coal to China were caused by import quotas.

"We have no basis to believe that there is a ban on Australian coal exports into China, or into any part of China," he told reporters.

POLICY "VERY FUZZY"

The move is not the first time China has restricted coal imports. The country has periodically imposed customs delays and quality controls over the past several years, juggling efforts to curb smog, cut coal use, balance imports against domestic production and protect jobs.

"The potential political nature of this targeted ban after a number of bilateral issues have surfaced ... may be reminiscent of the impediments to Mongolia's coal exports to China after the Dalai Lama visit in 2016," U.S. bank Citi said on Friday in a note.

Dalian will ban imports of all Australian coal indefinitely and limit coal imports from all sources to 12 million tonnes in 2019, a port official told Reuters on Thursday.

A manager at Beibu Gulf Port Group, which operates the Fangchang port and two other harbours in southern Guangxi region, said on Friday the port had no ban on Australian coal.

"For now, Australian coal can clear customs," he said, declining to be named because of company policy.

However, Australian coal, which accounts for more than half of the port's 18 million tonnes of imports each year, was taking longer to clear customs, he said, adding that official policy on product from Australian was "very fuzzy".

A purchasing manager at a large steel mill in eastern China said his firm was not concerned about coking coal supply, given sufficient inventory at ports, and did not expect the restriction to spread.

The ban at Dalian port was due to relatively weak coal demand in northeastern China, but broadening the restriction to eastern and southern China where demand is firmer would affect downstream users like utilities and steel mills.

Total imported coking coal inventory at five major Chinese ports stood at 3.02 million tonnes this week as of Feb.22, up 180,000 tonnes from last week, according to Mysteel consultancy.

To make up for any shortfall in Australian coal for power generation, known as thermal coal, traders said there was ample domestic supply, and also the option to import from Mongolia and Indonesia.

SHARES FALL

Shares in Australian coal miners fell on Friday amid broad weakness in the resources sector, but losses eased in afternoon trade.

Stanmore Coal slipped more than 7 percent before closing down 2.1 percent. New Hope Corp fell 3.6 percent and Yancoal fell 3 percent, despite saying it was not directly affected.

The Australian dollar steadied, boosted by upbeat central bank comments on the economy and government comments on the ban, but was still holding most of its losses from Thursday.

A Chinese foreign ministry spokesman said on Thursday that customs were inspecting and testing coal imports for safety and quality, and the move was "completely normal". ($1 = 1.4081 Australian dollars) (Reporting by Colin Packham in Sydney and Muyu Xu in Beijing; additional reporting by Melanie Burton and Sonali Paul in Melbourne, Henning Gloystein in Singapore; editing by Richard Pullin)