* Chinese shares rise 0.8 percent in early trade
* Financials strong; commodity companies firm
* Yuan little moved as PBOC holds cards close to chest
* Bond yields imply more tightening down road
By Jason Subler and Lu Jianxin
SHANGHAI, Dec 27 (Reuters) - Chinese investors took the central bank's surprise interest rate rise in stride on Monday, relieved the long-awaited move was finally out of the way and buying financial shares on the potential for higher earnings.
The 25-basis-point increase in benchmark lending and deposit rates by the People's Bank of China (PBOC) on Christmas Day came somewhat earlier than many investors had expected, suggesting the authorities may be front-loading its tightening measures.
The benchmark Shanghai Composite Index rose 0.8 percent by 0200 GMT to 2,859 points, with banking and insurance shares rising on expectations that higher benchmark rates would improve their returns from loans and bond investments, making it the best performer in Asia Monday morning.
"It is a typical case of selling the rumour but buying the fact. People think the shoe has dropped -- all short-term negative news is out of the way, so it is time for some bargain hunting," said Zheng Weigang, senior stock trader at Shanghai Securities.
"But the rally won't go far, as China is now in a monetary tightening cycle, with inflation so high. We retain our forecast that the index will move narrowly in coming weeks."
Commodity-related companies mostly saw gains, even though metal and other commodity futures fell on the news. [ID:nBJI002504]
Aluminium Corp of China , the biggest Chinese commodities-related firm in terms of market capitalisation, was among the top performers, rising 1.7 percent.
The top three insurance companies all gained. China Life Insurance rose 1.8 percent, while China Ping An Insurance Co rose 2.3 percent.
"Insurance stocks are the direct beneficiaries of the interest rate rise," said Cao Xuefeng, head of research at Huaxi Securities in Chengdu.
"But we think this rate rise may make the liquidity more tight in the mid-term, so the index may be set for a correction period."
YUAN IN HOLDING PATTERN
Many economists viewed the latest rate rise -- the second in just over two months and following a number of increases in banks' required reserves -- as a positive for the economy and corporate results in the long term as it could help keep inflation from getting out of hand.
Investors will also be watching closely for signs of whether the PBOC appears set to let the yuan strengthen more quickly in the coming months as another weapon in the fight against inflation, which hit a 28-month high of 5.1 percent in November.
The yuan weakened slightly early on Monday, after the central bank set its daily mid-point versus the dollar at 6.6305 -- stronger than the mid-point last Friday but still slightly below Friday's close.
The yuan was trading at 6.6293 per dollar, compared with Friday's close of 6.6270.
The domestic bond market responded by apparently pricing in more tightening to come. Yields on five- to 10-year government bonds rose around 15 basis points in early trade. The 10-year tenor rose to 3.29 percent.
($1 = 6.63 yuan)
(Editing Kazunori Takada)