Hong Kong shares up 23 pct in 2012, China's 1st annual gain since '09

* HSI flat on the day, jumps 22.9 pct in 2012

* CSI300 up 1.7 pct on Monday, up 7.6 in 2012

* Chinese insurers, brokers up, CSRC mutual funds ruling helps

* A-H premium nears 100 parity after A-share Dec outperformance

By Clement Tan

HONG KONG, Dec 31 (Reuters) - Mainland Chinese shares climbed to a six-month closing high on Monday, helping Hong Kong cut early losses as the onshore market closed out a first annual gain in three years helped by strength in brokerages and insurers.

Investors cheered a plan by the China Securities Regulatory Commission to allow eligible securities houses and insurers' asset management units to develop and manage mutual funds in its latest bid to revitalize the sector.

The Hang Seng Index closed flat at 22,656.9, hovering at its highest close since July 2011. Stiff chart resistance is next seen at around 22,800, intra-day highs last seen in July and August 2011. The benchmark jumped 22.9 percent in 2012.

The China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.5 percent on the day and 15.1 percent in 2012. Hong Kong markets shut at midday for the New Year holiday and will resume trading on Wednesday.

The CSI300 of the top Shanghai and Shenzhen listings rose 1.7 percent on the day and 7.6 percent in 2012. The Shanghai Composite Index gained 1.6 percent on Monday and 3.2 percent this year.

This was the first annual gain in three years for the two onshore indexes and the H-share index, and the best year since 2009 for all four benchmarks. Mainland markets are closed for a three-day holiday and resume trading on Friday.

"Investors rotated into Chinese non-bank financial stocks from banking ones today in Hong Kong," said Jackson Wong, vice-president of equity sales at Tanrich Securities.

"Financial reform is a very strong theme and will carry into 2013, but cyclical counters with low valuations will probably lead a rally in the early weeks," said Jackson Wong, vice-president of Tanrich Securities

On Monday, China Life Insurance was the biggest boost to indexes in Hong Kong and China, jumping 5.8 percent to a 20-month high in Shanghai, bringing its 2012 gains to 21.3 percent.

China Life shares climbed 3.1 percent to their highest since August 2011 in Hong Kong, rising 32 percent in 2012. Smaller rival, Ping An Insurance rose 1.9 percent in Hong Kong and 3.4 percent in Shanghai.

The announcement by the China Securities Regulatory Commission was its latest bid to reinvigorate an industry struggling to produce returns for investors and introduce more competition in an already-crowded mutual funds sector.

This follows an announcement last week allowing brokerages to sell subordinated debt and the Chinese central bank pledging to quicken the pace of reforming the financial sector that sent shares of Chinese brokerages soaring last Friday.

Shares of Citic Securities , China's largest listed brokerage, on Monday added a further 2.2 percent in Hong Kong and 1.5 percent in Shanghai. It finished 2012 up 53 percent in Hong Kong and 38 percent in Shanghai.

Tian Di Science & Technology, among 15 stocks added to the CSI300 with effect from Friday, rose 3.1 percent in Shanghai. Datang International Power Generation, among the 15 excluded, slipped 0.3 percent in Shanghai.

EARLY 2012 CYCLICAL RALLY TO REPEAT IN '13?

Despite outshining onshore peers in 2012, offshore Chinese shares finished 2012 way off the highest levels this year, mainly due to the underperformance of some growth-sensitive metal producer counters, which were plagued by inventory-related problems.

Chinese property-to-steel conglomerate Citic Pacific finished 2012 down 17.4 percent after rising by as much as 13.3 percent on the year in February.

Currently trading at a 27 percent discount to its forward 12-month earnings multiple, according to Thomson Reuters StarMine, Citic could see a repeat of its early 2012 rally as investors look to laggard cyclicals in early 2013, particularly if Chinese economic data come in better than expected.

On Monday, Hong Kong shares cut early losses while onshore Chinese markets extended gains after a survey of private factory managers showed activity in China's manufacturing sector hit its fastest pace in December since May 2011.

An improving Chinese economy, along with signs that large institutional investors were returning to the A-share market after several market-boosting measures, has helped onshore markets outperform offshore peers in December.

Chinese fund managers raised their recommended equity weightings in December to a seven-month high with a strong preference toward financial stocks as an improved economic outlook and market performance boosted risk appetite, the latest Reuters fund poll showed.

The CSI300 and Shanghai Composite closed on Monday at their highest since June 20, largely on the back of a surge in December. They soared 17.9 and 14.6 percent this month, their respective best monthly gains since July 2009.

That has helped the Hang Seng Index A/H premium index creep back towards the 100 parity level, closing at 99.4 on Monday, after dipping below that level in late October, wiping out the premium that onshore shares has historically traded over offshore peers.

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S.Korea to restart one of two troubled reactors this week

SEOUL | Sun Dec 30, 2012 11:11pm EST

SEOUL Dec 31 (Reuters) - South Korea will restart one of two nuclear reactors this week after being shut for nearly two months to replace parts which were found to have forged documents, easing power supply concerns as winter bites, the nuclear regulator and operator said.

The State-run Nuclear Safety & Security Commission said in a statement on Monday that it had approved the restart of a 1,000-megawatt (MW) reactor in Yeonggwang county, 300 km (186 miles) southwest of the capital Seoul.

A spokesman at Korea Hydro & Nuclear Power, state-run Korea Electric Power Corp's subsidiary that runs the country's nuclear industry, said the reactor is expected to fully supply power within this week.

South Korea's nuclear sector has been involved in a series of minor incidents and a scandal over forged certificates for parts used in what the government insists are non-essential operations - events that led to the closure of two reactors.

The commission has not yet decided when to approve the restart of the second reactor and is still discussing the issue with local residents, its officials said.

The commission has been investigating all 23 reactors to see if they were supplied with parts with fake quality documents and whether there are any safety concerns.

South Korea, Asia's fourth-largest economy, depends heavily on oil and gas imports but its nuclear reactors supply a third of its power.

Of the 23 reactors, four with a combined 3,680 MW power supply capacity remain closed, according to industry data.

Public support for nuclear power remains strong in South Korea despite last year's Fukushima disaster in Japan last year, and Seoul plans to have added another 11 reactors by 2024.

The government has been campaigning nationwide to save energy and avoid power blackouts in the colder than usual winter.

(Reporting by Meeyoung Cho, Editing by Jonathan Thatcher)

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UPDATE 2-Iberdrola to sell French wind parks to cut debt

* Deal is part of debt-cutting drive

* Strategy aimed at keeping investment credit rating

* Polish, U.S. asset sales could follow - sources

By Sarah Morris

MADRID, Dec 31 (Reuters) - Spanish utility Iberdrola is selling its French wind park unit to a consortium including General Electric for about 400 million euros ($529 million) in its drive to cut debt and keep an investment grade credit rating.

The world's largest operator of wind farms said in October it would sell some of its operations, slash investment and cut its workforce over the next two years in order to reduce debt by 6 billion euros to 26 billion by 2014.

Iberdrola is one of several Spanish firms, including Telefonica and Repsol, battling to avoid the big credit downgrades that have hit the cash-strapped Spanish government and which make borrowing harder, and more costly.

In a statement to the stock exchange regulator on Monday, Iberdrola said Iberdrola Renovables France (IBRF), which directly or indirectly controls 32 wind parks, would be sold to a consortium. The unit's offshore assets will be transferred to a separate entity before the sale.

Once the deal is completed, General Electric will own 40 percent of the unit and MEAG, the asset manager of German insurer Munich Re, another 40 percent. EDF Energies Nouvelles, the renewable unit of France's EDF, will own the remaining 20 percent.

The total installed capacity of the French onshore wind farms is 321.4 megawatts.

Iberdrola said the deal involved an initial payment of 350 million euros and an additional payment of 50 million euros subject to conditions.

At 0956 GMT Iberdrola shares were down 1.3 percent at 4.08 euros.

Some analysts think Iberdrola could cut its dividend to preserve its coveted investment credit rating if the Spanish government fails to pay it back in full for years of selling power at regulated prices..

S&P left Iberdrola's rating at just one notch above junk in November, citing concerns the government could delay repaying power companies the deficit of up to 24 billion euros they have racked up from selling electricity at a loss.

The French deal comes after the utility announced on Friday the sale of 20 percent of its stake in the Medgaz pipeline, running between Algeria and Spain, for 146 million euros.

A source with knowledge of the matter told Reuters earlier this month Iberdrola was close to a deal to sell renewable energy assets in Poland for about 200 million euros .

It had also received offers for 10 wind parks in the United States, said another source with knowledge of the matter.

On Saturday Bolivia nationalised two electricity distribution companies owned by Iberdrola. The companies contribute less than 1 percent of profit to the utility.

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FEATURE-Storms on U.S. Plains stir memories of the "Dust Bowl"

By Kevin Murphy

LIBERAL, Kan. | Sun Dec 30, 2012 6:59am EST

LIBERAL, Kan. Dec 30 (Reuters) - Real estate agent Mark Faulkner recalls a day in early November when he was putting up a sign near Ulysses, Kansas, in 60-miles-per-hour winds that blew up blinding dust clouds.

"There were places you could not see, it was blowing so hard," Faulkner said.

Residents of the Great Plains over the last year or so have experienced storms reminiscent of the 1930s Dust Bowl. Experts say the new storms have been brought on by a combination of historic drought, a dwindling Ogallala Aquifer underground water supply, climate change and government farm programs.

Nearly 62 percent of the United States was gripped by drought, as of Dec. 25, and "exceptional" drought enveloped parts of Kansas, Colorado, Oklahoma, Texas, and New Mexico, according to the U.S. Drought Monitor.

There is no relief in sight for the Great Plains at least through the winter, according to Drought Monitor forecasts, which could portend more dust clouds.

A wave of dust storms during the 1930s crippled agriculture over a vast area of the Great Plains and led to an exodus of people, many to California, dramatized in John Steinbeck's novel "The Grapes of Wrath."

While few people believe it could get that bad again, the new storms have some experts worried that similar conditions - if not the catastrophic environmental disaster of the 1930s - are returning to parts of Texas, Oklahoma, New Mexico, Kansas and Colorado.

"I hope we don't talk ourselves into complacency with easy assumptions that a Dust Bowl could never happen again," said Craig Cox, agriculture director for the Environmental Working Group, a national conservation group that supports converting more tilled soil to grassland. "Instead, we should do what it takes to make sure it doesn't happen again."

Satellite images on Dec. 19 showed a dust storm stretching over an area of 150 miles (240 km) from extreme southwestern Oklahoma across the Panhandle of Texas around Lubbock to extreme eastern New Mexico, said Jody James, National Weather Service meteorologist in Lubbock. Visibility was reduced to half a mile in places, stoked by high winds, he said. At least one person was killed and more than a dozen injured in car crashes.

"I definitely think these dust storms will become more common until we get more measurable precipitation," James said.

'DIRTY 30S'

The Great Plains is a flat, semi-arid, area with few trees, where vast herds of buffalo once thrived on native grasses. Settlers plowed up most of the grassland in the late 19th and early 20th centuries to create the wheat-growing breadbasket of the United States, encouraged by high commodity prices and free "homestead" land from the government.

The era known as the "Dirty 30s" - chronicled by Ken Burns in a Public Broadcasting Service documentary that aired in November - was when a 1930s drought gripped the Great Plains and winds carried away exposed soil in massive dust clouds.

Bill Fitzgerald, 87, a farmer near Sublette, Kansas, remembers "Black Sunday" on April 14, 1935, when a clear, sunny day in southwest Kansas turned black as night by mid afternoon because of a massive cloud of dust that swept from Nebraska to the Texas panhandle.

"My older brother and I were in my dad's 1927 or '28 Chevy truck a mile north and a mile west of the house and we saw it rolling in," Fitzgerald said. "It was about 10 p.m. when it cleared enough for us to go home."

Farming practices have vastly improved since the 1930s. Farmers now leave plant remnants on the top of the soil and less soil is exposed, to preserve moisture and prevent erosion.

Irrigation beginning in the 1940s from the Ogallala aquifer, a huge network of water under the Great Plains, also made land less vulnerable to dust storms.

DRYING UP

But the Ogallala aquifer is drying up after years of drawing out more water than was replenished.

Many farmers have had to drill deeper wells to find water. Others are giving up on irrigation altogether, which means they can no longer grow crops of high-yielding and lucrative corn. They will instead grow wheat, cotton or grain sorghum on dry land, which depends completely on natural precipitation in an area that typically gets 20 inches of rain a year or less.

Near Sublette, Kansas, farmer Gail Wright said he would probably give up irrigating two square miles of his land and would plant wheat and grain sorghum instead of corn because of the diminishing aquifer. Drilling deeper wells would cost $120,000 each, Wright said.

"When we drilled those wells in the 1960s and 70s, we were doing 1,500 or 1,600 gallons per minute," said Wright. "Now, they are down to anywhere from 400 to 600 gallons per minute. We probably pumped out 200 feet of water."

Another farmer in Sublette, 79-year-old Lawrence Withers, whose family farms land his grandfather settled in 1887, is resigned to a future without irrigation.

"We have pumped 170 feet off the aquifer, that's gone. There's just a little tick of water at the bottom," he said.

The Ogallala supplies water to 176,000 square miles (456,000 square km) of land in parts of eight states from the Texas panhandle to southern South Dakota. That amounts to about 27 percent of all irrigated land in the nation, according to the U.S. Geological Survey.

The volume of water in the aquifer stood at about 2.9 billion acre feet in 2009, a decline of about 9 percent since 1950, according to the Geological Survey. About two-and-a-half times as much water was drawn out in the 14 years ended 2009 as during the prior 15-year period, data shows.

The water may run out in 25 years or less in parts of Texas, Oklahoma and southwest Kansas, although in other areas it has 50 to 200 years left, according to the Geological Survey.

Rationing has been imposed on irrigation in the region but it may be too little too late.

"It's a situation where across the Plains the demand far exceeds the annual recharge," said Mark Rude, executive director of the Southwest Kansas Groundwater Management District.

RECORD DROUGHT

The worst drought in decades has exacerbated the situation. The semi-arid area around Lubbock, which typically gets about 19 inches of rain a year, received less than 6 inches in 2011, the lowest ever recorded. This year was better but still far below normal at 12.5 inches, meteorologist James said.

Climate change is also having an impact on the region, said atmospheric scientist Katharine Hayhoe, co-director of the Climate Science Center at Texas Tech University in Lubbock.

"It is definitely hotter in the summer and drier in the summer because of climate change," she said.

The average annual temperature in Lubbock has increased by one full degree over the last decade, according to National Weather Service data, and the average amount of rainfall has fallen during summer months by about .50 inch over the decade.

Some say government policies are making things worse.

Federal government subsidized crop insurance pays farmers whether they produce a crop or not, encouraging farmers to plant even in a drought year.

Another subsidized U.S. government program that pays farmers to take sensitive marginal land out of crop production and put it into grassland is gradually shrinking.

In a possible case of history repeating itself, high commodity prices are encouraging farmers to break up the land and plant crops when the 10-year conservation contracts with the government expire, said environmentalist Cox. This is similar to what happened in the 1920s when vast areas of grassland were plowed up.

The government also has imposed restrictions on how much land can go into conservation reserves to save money at a time of massive U.S. budget deficits, he said.

The amount of land in conservation reserves has declined by more than 2.3 million acres over the last five years in five states of the Great Plains - Texas, Oklahoma, Kansas, Colorado and New Mexico, according to U.S. Agriculture Department data.

If most of that land is plowed up for crops it could lead to more dust storms in the future.

"I think you are probably going to see increased erosion if that happens," said Richard Zartman, Chairman of the Plant and Soil Science Department at Texas Tech, adding that it was unlikely to get as bad as the Dust Bowl days.

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UPDATE 1-Hunger strike pressures Canada PM, aboriginal protests spread

* Hunger strike in 3rd week as "Idle No More" movement grows

* Aboriginal leaders demand top-level meeting

* Protests spread with help of social media

* Flash mobs in dozens of Canadian, U.S. shopping malls

By Louise Egan

OTTAWA, Dec 28 (Reuters) - A Canadian aboriginal chief in the third week of a hunger strike is urging Prime Minister Stephen Harper to "open his heart" and meet with native leaders angered by his policies as small impromptu protests spread beyond Canada's borders.

Chief Theresa Spence from the remote northern Ontario community of Attawapiskat has been fasting since Dec. 11 and has vowed to continue until Harper commits to talks on a litany of complaints, including new legislation that she says will harm native lands.

"He's a person with a heart but he needs to open his heart. I'm sure he has faith in the Creator himself and for him to delay this, it's very disrespectful, I feel, to not even meet with us," she said in an interview in Ottawa.

Spence is at the center of an unprecedented Canadian aboriginal protest movement called "Idle No More" that began with four women in the province of Saskatchewan raising awareness about the Conservative government's budget legislation passed earlier this month.

The legislation, which has also been criticized by opposition politicians, reduces environmental protections for lakes and rivers and makes it easier to sell reserve lands.

Aided by Facebook and Twitter, their protest proliferated and is now drawing comparisons to the "Occupy Wall Street" movement.

"Flash mob" protests with traditional dancing and drumming have erupted in dozens of shopping malls across North America. There have been rallies, marches and highway blockades by aboriginal groups across Canada and supporters have emerged from as far away as New Zealand and the Middle East.

The campaign aims to draw attention to dismal conditions faced by many of the country's 1.2 million natives, including poverty, unsafe drinking water, inadequate housing, addiction and high suicide rates.

'I'M WILLING TO DIE'

Camped out in a traditional teepee within sight of Ottawa's Parliament buildings, Spence appeared weak and short of breath but resolute on Thursday, Day 17 of her hunger strike, staying warm by a wood stove as a snow storm raged outside.

To critics who question her strategy and say her demands are too vague, Spence replies that she has run out of patience.

"I know it's hard for people to understand what I'm doing but it's for this pain that's been going on too long with our people," she said, sitting on her makeshift bed and flanked by supporters.

Blankets hung from the inside walls of the teepee and a faint aroma of cedar rose from branches spread on the ground. Spence is consuming only water, fish broth and a medicinal tea.

"It has to stop and I'm willing to suffer until the meeting goes on. Even if I don't make it, people will continue my journey. Like I keep saying, I'm willing to die for the people of First Nations because the suffering is too much," Spence said.

Spence was in the headlines last year when a housing crisis in her community forced people to live in tents in temperatures of minus 40 Fahrenheit (minus 40 Celsius).

The Canadian government suggested taxpayer funds were being squandered and appointed an outside adviser to oversee the town's finances, a move seen as insensitive and later rejected by the courts.

At the core of Spence's protest are what aboriginal groups say are unfulfilled promises by the federal and provincial governments dating back to treaties in the early 1900s that would give aboriginal groups a stake in natural resources development, among other benefits.

Many native communities are affected by mining developments or projects like Enbridge Inc's planned C$6 billion ($5.9 billion) Northern Gateway Pipeline. The project, which has yet to win government approvals, would take oil sands crude to the Pacific coast.

Harper met with native leaders in January but Spence says he imposed his own agenda. Harper's office declined to comment.

A spokesman for Aboriginal Affairs Minister John Duncan said the minister has tried repeatedly to reach Chief Spence.

"We will continue trying to engage the chief and other First Nation leaders to discuss how we can build on the progress we have made since 2006," said the spokesman, Jason MacDonald.

MacDonald said Ottawa had built and renovated schools and homes, invested in safe drinking water, introduced legislation to protect the rights of women on reserves and settled over 80 land claims.

Health minister Leona Aglukkaq, the one aboriginal member of Harper's cabinet, urged Spence on Friday to resume eating and to meet with Duncan.

SIMILAR TO 'OCCUPY' MOVEMENT?

Meanwhile, with the help of social media the Idle No More movement has taken on a life of its own in much the same way the first "Occupy Wall Street" camp gave birth to a multitude of "occupy" protests with no specific demand or leadership.

But Peter Russell, an expert in aboriginal politics at the University of Toronto, says unlike the "99 percent" campaign, aboriginals at just 3 percent of the population historically have taken drastic action to be recognized. He sees no sign "Idle No More" will dissipate soon.

Events listed on the group's Web site for Friday include rallies in Los Angeles and London, where protesters plan to present Queen Elizabeth with a letter.

But organizers say they've lost track. Their initial Facebook page has 33,000 members and the Twitter hash tag was mentioned 40,000 times in a single day at its peak on Dec. 21.

"This has spread in ways that we wouldn't even have imagined," said Sheelah McLean, an instructor at the University of Saskatchewan who was one of the four women who originally coined the "Idle No More" slogan.

"I don't think the hash tag is the most important thing that has happened," she said.

"What this movement is supposed to do is build consciousness about the inequalities so that everyone is outraged about what is happening here in Canada. Every Canadian should be outraged."

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UPDATE 4-Snow buries parts of U.S. Northeast, flights canceled

* Winter storm and coastal flood advisories issued

* Ski country gets a lift after little snowfall last year

By Neale Gulley

BUFFALO, N.Y., Dec 27 (Reuters) - A powerful winter storm pushed through the U.S. Northeast on Thursday, forcing the cancellation of hundreds of airline flights while bringing some holiday cheer to families hoping for snow and lifting spirits at ski resorts in the region.

The storm dumped a foot (30 cm) of snow on parts of the United States with the heaviest snow falling across northern New York and New England, the National Weather Service reported.

"It feels lovely to have wonderful snow for the kids to play in, and I think it's the kind of snow that's good for making forts and snowmen," said Katryna Nields, a musician in Conway, Massachusetts, who was outside her home shoveling snow.

"It's just the kind of snow you want for between Christmas and New Year's," she added.

The National Weather Service issued winter storm warnings for parts of Pennsylvania, New Jersey, New York and New England and coastal flood advisories from New York's Long Island to southern Maine.

Airlines canceled more than 800 flights on Thursday, according to FlightAware.com, a website that tracks flights.

Some flights into and out of the three major New York City area airports - Newark Liberty International, John F. Kennedy International and LaGuardia - were delayed due to the weather, the Federal Aviation Administration reported.

The weather service forecast 12 to 18 inches (30 to 46 cm) of snow for northern New England, accompanied by freezing rain and sleet, creating hazards on the highways and at airports.

More snow is headed east, said Alex Sosnowski, senior meteorologist at Accuweather.com.

"A new storm is in the works for portions of New England, the mid-Atlantic and the Ohio Valley," he said.

The new storm "will bring more snow to areas that received snow from the post-Christmas storm and will bring snow to some areas that got rain or mostly rain," he said, adding that it has the potential to strengthen to a strong nor'easter or blizzard in parts of New England.

Tom Olney, a 50-year-old stay-at-home father of two, was making plans to go sledding with his children in their hometown of Wayland, Massachusetts.

"We love snow," Olney said. "What else are you going to do when it's this wet and cold out?"

Western Massachusetts, like much of the Northeast, had an uncharacteristically mild winter last year, but residents such as Olney say they are ready for a more typical cold season.

"Mother Nature doesn't usually give you two in a row," he said. "We've still got a lot of supplies from last year, so I guess we're ready for it now."

Heavy snow was falling in Maine, Vermont and New Hampshire.

Eleven inches of snow was forecast for Buffalo, where some 8 to 12 inches (20 to 30 cm) of snow fell overnight into Thursday. Prior to that, Buffalo was 23 inches (58 cm) below average for this time of year, the weather service said.

"It's just a reminder, winter is here," said Tom Paone of the National Weather Service in Buffalo.

Daniel Ivancic, of the Buffalo suburb of Tonawanda, said he bought a snowmobile last winter that has sat largely idle with snow totals well below average.

"I waited and waited and, no snow. This winter it seemed like the same thing was going to happen until the storm hit," Ivancic said. "I'm just going to take advantage of every minute of it."

Police patrolling the New York State Thruway from Buffalo to Albany reported dozens of accidents, mostly involving cars that slipped off snowy roads overnight.

Freezing rain - making for treacherous travel conditions - was predicted for parts of Maryland, Pennsylvania, Virginia and West Virginia while significant rain was likely along the New Jersey, Virginia and Maryland coasts, the weather service said.

The storm system dumped record snow in north Texas and Arkansas before sweeping through the South on Christmas Day and then veering north.

The system triggered tornadoes and left almost 200,000 people in Arkansas and Alabama without power on Wednesday.

Authorities said an 81-year-old man died in Georgiana, Alabama after a tree fell on his home.

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UPDATE 3-Bolivia nationalises Iberdrola electricity companies

(Adds Spanish government comment)

By Carlos Quiroga and Sonya Dowsett

LA PAZ/MADRID Dec 29 (Reuters) - Bolivia nationalised two electricity distribution companies owned by Spanish utility Iberdrola on Saturday, the latest move by leftist President Evo Morales to assert control over the country's resources.

Iberdrola will be compensated according to a valuation to be drawn up by an independent arbiter, Morales said, adding that the measure was aimed at enhancing rural energy services.

"We considered this measure necessary to ensure equitable energy tariffs ... and to see to it that the quality of electricity service is uniform in rural as well as urban areas," Morales said.

President Morales has nationalised oil, telecommunications, mining and electrical generation companies.

In June, Morales took control of global commodities giant Glencore's tin and zinc mine in Bolivia and more nationalisations of mining companies could be ahead in the Andean country.

Iberdrola, whose office in capital city La Paz was being guarded by police on Saturday, has operated in Bolivia since the late 1990s. An Iberdrola spokesman said the company was studying the situation and declined to comment further.

Spain regretted Bolivia's actions, the Spanish Ministry of Foreign Affairs said in a statement on Saturday, adding the government hoped the shareholders of the companies involved would be fairly compensated.

"This decision by the Bolivian government involves companies that carried out the public service of distributing electricity that have never belonged to the Bolivian state," the statement said.

The Iberdrola units are Electropaz, which supplies around 470,000 customers in the cities of La Paz and El Alto; and Elfeo, which supplies over 80,000 customers in the city of Oruro.

The nationalisation also includes two small suppliers owned by Iberdrola, which provide services to the distributors.

In 2006, Morales announced the takeover of petroleum companies operating in Bolivia. He later nationalised oil and gas reserves to redistribute wealth to the landlocked country's indigenous majority.

Iberdrola is not the first Spanish company to have its assets seized in Latin America.

Bolivia decided to nationalise a power transmission unit of power grid operator Red Electrica in May, just weeks after Argentinian President Cristina Fernandez seized YPF , the country's biggest energy company, accusing oil major Repsol of underinvesting at the unit.

Repsol called the move unlawful, discriminatory and a violation of a bilateral investment treaty between Spain and Argentina. The World Bank's arbitration body has agreed to begin an arbitration process on the Repsol case.

Other Spanish companies in Bolivia include bank BBVA and motorway operator Abertis, though exposure for each is less than 1 percent of revenues. (Additional reporting by Blanca Rodriguez in Madrid and Hugh Bronstein in Buenos Aires; editing by Gunna Dickson)

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