* Egyptians surprised by size of increase
* Soaring living costs test Sisi's popularity (Adds industrial figures, businessman)
By Abdelrahman Adel and Amina Ismail
CAIRO, June 29 (Reuters) - Egypt on Thursday hiked fuel prices by up to 50 percent to help meet the terms of a $12 billion IMF loan deal, a sharper rise than expected by many struggling with soaring living costs and a further test of President Abdel Fattah al-Sisi's popularity.
Fuel price increases had been widely anticipated as part of Egypt's loan accord with the International Monetary Fund and Thursday's measures were the second rise since the government floated the pound currency in November.
Government officials say spending cuts will help revive an economy where subsidies have accounted for about a quarter of state expenditures. But austerity carries risks for Sisi as inflation and a contested deal to hand two Red Sea islands to Saudi Arabia have eroded his public standing.
Prime Minister Sherif Ismail told reporters after the announcement that officials would monitor market prices, adding: "We will not allow any greed and exploitation of our citizens."
Petroleum Minister Tarek El Molla told Reuters the price of 92-octane gasoline had been put up by more than 40 percent to 5 Egyptian pounds ($0.2767) from 3.5 pounds per litre. Diesel and 80-octane - the most commonly used fuel categories - rose more than 50 percent to 3.65 pounds per litre from 2.35 pounds.
The government also increased the price of cooking gas cylinders - used mostly by poorer Egyptians - by 100 percent to 30 pounds ($1.66) from 15 pounds per cylinder.
Molla said the total subsidies for petroleum products in 2017-2018 would fall to 110 billion Egyptian pounds ($6.09 billion) from 145 billion pounds ($8.02 billion).
Fuel oil prices to cement factories will rise by 40 percent to 3,500 Egyptian pounds per tonne from 2,500 pounds a tonne, but gas prices to the industrial sector will remain stable, Molla said.
Last year, the government embarked on an ambitious reform programme to revive the economy that includes lifting subsidies, raising taxes and loosening capital controls as part of a three-year IMF agreement.
Egypt has been struggling since a 2011 uprising drove foreign investors and tourists away, and many Egyptians have been hit hard by record inflation and a local currency that has lost half its value since it was floated in November.
In December, Sisi said that tough economic conditions in Egypt would improve in six months. But for many Egyptians, conditions have deteriorated.
"It's completely the wrong timing. People can't take it anymore, all prices will increase," Cairo taxi driver Ehab Labib said of the fuel hike. "I will sell this taxi, what else am I going to do?"
Government officials say short-term austerity under the IMF plan will free up more financing for infrastructure and help draw foreign investment to help create jobs and economic growth.
Egypt is expected to receive the second IMF loan instalment of $1.25 billion within the coming few weeks.
The central bank floated the pound last November as part of reforms agreed with the IMF. At that time, the government increased fuel prices by as much as 46 percent.
Egyptian businessmen worry that they will have to bear the extra costs of Thursday's move and say they have not yet fully recovered from the impact of austerity measures taken over the past eight months.
"My expectation is costs will go up between 3-5 percent," said Hani Berzi, Edita Food Industries chairman, one of the country's largest food producers.
"I will have to absorb that, I have no intention of increasing prices... the market can't stand it."
Thursday's announcement came on the fourth anniversary of mass demonstrations against then-President Mohammed Mursi of the Muslim Brotherhood. Mursi, democratically elected after the 2011 revolution, was overthrown by Sisi, then the armed forces chief.
Sisi on Saturday also ratified an agreement that cedes sovereignty over two uninhabited Red Sea islands to Saudi Arabia, which had long claimed them, brushing off widespread public criticism of the deal. ($1 = 18.0700 Egyptian pounds) (Additional reporting by Amina Ismail; writing by Patrick Markey; editing by Mark Heinrich and Toby Davis)