* Monetary policy in China, U.S. key risk factors
* Frugal consumers, weak credit growth hold back market
* Canberra policy uncertainties could stem gains
* S&P/ASX 200 seen rising to 5,350 by end 2011
By Sonali Paul
MELBOURNE, March 24 (Reuters) - Australian shares are seen rising 14 percent through to the end of 2011, bolstered by the mining and energy sectors, with China, India and Japan seen driving demand for metals, coal and natural gas, a Reuters poll showed.
But those same factors may eventually hurt the Australian market, as soaring commodity prices stoking inflation could lead China, Europe and the United States to tighten monetary policy and slow growth, strategists said.
"The biggest downside risk is a hard landing in China, which leads to a fall in commodity prices," said Tim Baker, strategist at Deutsche Bank.
The benchmark S&P/ASX 200 index, which dropped 2.6 percent last year, is forecast to rise to 5,350 by end-2011, a 13.8 percent gain from Thursday's close of 4,699.6, slightly lower than forecast three months ago.
Estimates in the poll of 15 analysts taken over the past week ranged between 4,250 and 5,600.
The index has dropped 1 percent so far in 2011, following the Japan disasters, uncertainty in the Middle East and North Africa, and a string of weather disasters in Australia.
For mid-2011, the poll predicts the index will reach 5,025, more than 3 percent lower than December's forecast, amid concerns that turmoil in Libya and the Middle East could propel oil prices even higher and derail global growth.
Rising oil and commodity prices will be in focus as the global economic recovery picks up and central banks weigh interest rate hikes.
"Liquidity conditions are incredibly key at the moment," said Atul Lele, equity strategist at Credit Suisse.
"Right now they're clearly changing. We are at the inflection point and valuations are not cheap, which is when assets are at greatest risk," he said.
Strategists played down the impact of the quake and tsunami disasters in Japan, Australia's second-biggest export market.
On the positive side, the massive reconstruction effort will boost miners and energy producers as Japan needs iron ore for steelmaking and natural gas for power plants replacing shut nuclear plants, they said.
TWO-SPEED ECONOMY
While the resources sector is booming, the rest of the economy and equity market are sluggish, with Australians spending less after being hit by floods and cyclones, interest rate hikes, and higher petrol, food, utility and school bills.
That has hit banks, the market's biggest sector, as credit growth remains weak, while sales growth has slowed for retailers, manufacturers and construction companies.
Strategists warned that with confidence already fragile, the biggest threats to the market would be a sharper rise in oil prices, which would add to pressure to raise interest rates, a double whammy for consumers and businesses.
"These tensions in the Middle East and North Africa are clearly the biggest supply threats we've had in a long time and it can have a serious detrimental impact in terms of confidence levels," said Savanth Sebastian, equity economist at broker Commonwealth Securities.
Political uncertainty in Canberra could also dampen investor sentiment, as the Labor government depends on support from Greens and independents. That has led to delays and backflips on key issues such as a carbon tax and a decision on the merger of bourse operator ASX with Singapore Exchange.
In the worst case, strategists said investors would flee equities if Japan is unable to prevent a radiation catastrophe at its crippled nuclear reactor.
"I don't think we'd go as far as global financial crisis levels. But the third-largest economy in the world entering a nuclear disaster is going to be cataclysmic for equity markets globally, so probably at least another 10 percent downside," said Alva DeVoy, senior strategist at RBS Australia.
(Additional reporting by Miranda Maxwell, additional polling by the Bangalore Polling Unit; Editing by Jon Loades-Carter)