UPDATE 1-Taiwan to allow investments in China futures

* Taiwan to allow local funds to invest in China futures

* Taiwan funds can put up to 10 percent in futures and stocks

* Move comes as Taiwan funds experiment with different tools (Adds background)

By Rachel Lee

TAIPEI, April 15 (Reuters) - Taiwan will allow local funds to invest in Chinese futures markets, the latest sign of warming cross-strait ties under a year-old China-friendly administration, a regulatory official said on Wednesday.

Under the new guidelines, Taiwan funds can put up to 10 percent of their net assets in any combination of Chinese futures and stocks, said the official at the Financial Supervisory Commission, speaking on condition of anonymity because he was not authorised to speak to the media.

Taiwan funds were previously allowed to invest in China stocks but not in any of the country's three futures markets, which are in the cities of Shanghai, Dalian and Zhengzhou.

He said the guidelines would take effect when the two sides sign an economic agreement liberalising rules governing investments by their financial institutions in each other's markets, which is expected by the end of May.

The move comes as Taiwan allows the establishment of futures funds for the first time, in a move to diversify its markets to include more financial products.

Two local financial firms, Cathay Financial (2882.TW) and Polaris Securities 2854.TW, are in the process of setting up the island's first futures funds.

Cathay told Reuters late last month it will launch Taiwan's first such fund, and is planning to raise T$7 billion ($207 million) for that endeavour. [ID:nTP69974] ($1=33.7 Taiwan Dollar)

(Writing by Kelvin Soh, Editing by Jacqueline Wong)