* Optimism on iPhone 8 has attracted foreign funds
* Imagination Technology crash may be warning for Apple suppliers
* Taiwan investors will anxiously follow Trump-Xi meetings
By Faith Hung and Nichola Saminather
TAIPEI/SINGAPORE, April 6 (Reuters) - Taiwan's stock market has risen almost 20 percent over the past 15 months but gains have slowed recently as investors drawn by anticipation of the iPhone 8 pay more heed to risks previously dismissed.
With about one-third of its stocks - including heavyweights Taiwan Semiconductor Manufacturing Co (TSMC) and Hon Hai Precision Industry - dependent on Apple Inc., Taiwan is vulnerable to sharp declines if the U.S. company turns away from the island for its major suppliers, or if the iPhone 8 doesn't meet expectations.
A fate similar to Imagination Technologies' 70 percent plunge on Monday after Apple's decision to drop the UK company as a major supplier cannot be ruled out.
Export-dependent Taiwan could also see its fortunes reversed should U.S. President Donald Trump impose a border tax on imports, or if he labels the island a currency manipulator.
A bad turn in Taiwan's mercurial relations with China, its largest trading partner, could also make investors flee.
"So far the market has ignored the protectionist threat and has focused on good aspects of Trump economic policy," said Frank Benzimra, head of Asian equity strategy at Societe Generale in Hong Kong, who has moderated his bullish stance on Taiwan this year due to concerns about U.S. policies and rising valuations.
As many Taiwan companies have production facilities in China, investors will closely watch the first meeting between Trump and Chinese President Xi Jinping later on Thursday.
Trump has said he expects the meeting to be difficult given his belief China has taken advantage of U.S. trade policies.
"Trump's protectionism could force Taiwan’s supply chain to move to the U.S or raise their capital expenditures, without actually expanding their market very much," said Tom Wu, chief investment officer of global investments for Yuanta Funds in Taipei. "That would put pressure on their earnings."
Taiwan had Asia's strongest foreign fund inflows in January and February but was overtaken by India and South Korea in March, according to Thomson Reuters data.
The inflows helped lift the Taiwan dollar about 6.7 percent this year, making it the region's best performer after the Korean won.
The currency's strength poses a potential problem for the island's exporters, but Taiwan's central bank has been reluctant to intervene, not least because of the threat of being labeled a currency manipulator by the U.S. in a report on trading partners' currency practices due this month.
Foreign interest in some technology stocks "has driven part of that currency appreciation," said Oliver Lee, investment director in Hong Kong at Old Mutual Global Investors, who is underweight tech stocks including TSMC. "But then, there is that underlying threat of Trump labeling them a currency manipulator."
Despite the risks, some fund managers remain optimistic, continuing to accumulate shares of TSMC and other Apple suppliers.
"The story of the year is the iPhone 8 supply chain," said Jeff Chang, chairman of Cathay Securities Investment Trust, Taiwan’s largest fund house. "Our funds will continue to add these shares."
Reporting by Faith Hung and Nichola Saminather; Editing by Richard Borsuk