Apple's iPhone 5 starts strong in China but shares pressured

An employee cleans an advertisement plate at an Apple dealership on the eve of iPhone 5's release, in Wuhan, Hubei province December 13, 2012.

REUTERS - Apple Inc (AAPL.O) sold more than 2 million iPhone 5s in China in just three days after its launch there on Friday, its best ever smartphone launch in the country, but Apple shares fell on Monday after Citi downgraded the stock.

The highly anticipated release in China, Apple's second-biggest market, has not eased worries about stiffer competition in mobile devices that has driven a slide in the share price of the world's most valuable technology company.

Jefferies analyst Peter Misek said last week that Apple had started cutting orders to iPhone suppliers to balance excess inventory.

Sales of Amazon.com Inc's (AMZN.O) cheaper Kindle Fire tablets have also surged this year and rival Microsoft Corp (MSFT.O) recently forayed into the market with its Surface.

Apple shares have fallen on seven of the last 10 trading days, with several analysts cutting their price targets on the company's stock.

The shares were down 1.3 percent at $502.76 in early trading on the Nasdaq. The stock has shed nearly 13 percent of its value since the beginning of this month to Friday's close.

Citi Research downgraded Apple's stock on Sunday to "neutral" from "buy", and lowered its price target to $575 from $675, citing diminishing hype around the iPhone 5 and improving competition in smartphones.

But Topeka Capital Markets remained upbeat, suggesting Chinese iPhone owners would upgrade from iPhone 4 models.

"The strong iPhone 5 sales this weekend support our view," Topeka Capital Markets analyst Brian White said in a research note on Monday.

"The iPhone 5 is all about the status upgrade. A new form factor shows the world that you have the latest and greatest iPhone, a sign of status in China."

Apple's latest iPhone, sporting a larger 4-inch screen and 4G capability, made its global debut with a launch in the United States and 30 other countries in September, selling more than 5 million in its first three days on the market.

This is the first time Apple has announced China sales numbers for the iPhone and Chief Executive Tim Cook said that this was the best first weekend sales ever in China.

Analysts, however, say the company's longer-term outlook in the China market may hinge on expanding its partners in that country to include China Mobile Ltd (0941.HK), the country's top telecoms carrier.

(Reporting by Sakthi Prasad and Sayantani Ghosh in BANGALORE and Melanie Lee in SHANGHAI; Editing by Edmund Klamann)