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* China wants to have bigger say in gold pricing
* Shanghai Gold Exchange talking to foreign banks, producerson new int'l exchange
* Move comes as London daily gold "fix" under scrutiny
* New exchange plans physical contracts initially, thenderivatives
By A. Ananthalakshmi
SINGAPORE, May 27 (Reuters) - China has approached foreignbanks and gold producers to participate in a global goldexchange in Shanghai, people familiar with the matter said, asthe world's top producer and importer of the metal seeks greaterinfluence over pricing.
The Shanghai Gold Exchange (SGE) got the go ahead from thecentral bank last week to launch a global trading platform inthe city's pilot free trade zone, a move that could challengethe dominance of New York and London in gold trade and pricing.
Beijing's plans to open up gold trading comes at a time whenthe benchmark price-setting process for precious metals is underscrutiny. Barclays Plc became the first bank to befined over attempted manipulation of the 95-year-old benchmarkLondon gold market daily "fix" last week.
State-backed SGE has asked bullion banks such as HSBC, Australia and New Zealand Banking Group,Standard Bank, Standard Chartered and Bank ofNova Scotia to take part in the global tradingplatform, two people approached by the exchange said.
SGE, the world's biggest physical gold exchange, wheredomestic banks, miners and retailers buy and sell gold, couldalso open up the international platform to foreign brokeragesand gold producers, they said.
"China wants to have more voice in gold prices," said JiangShu, an analyst with Industrial Bank, one of 12 banks allowed toimport gold into China. "The international exchange is the firststep towards gaining a say in gold pricing."
"If you don't allow foreign players to participate in yourmarket actively, or do not push Chinese financial institutionsto participate in the international market, then China's stronggold demand is only a number, not a power," he said.
HSBC and Standard Bank declined to comment, while the otherbanks and SGE were not immediately available for comment.
The global platform will first host spot physical contractsfor gold and other precious metals, before aiming to launchderivatives down the line, said a third source who is directlyinvolved in the launch of the international exchange.
"We are not just encouraging foreign banks but alsoproducers and other entities," added the source.
China, the world's biggest buyer of raw materials fromcopper to coal, is pushing hard to establish pricing benchmarksfor a number of commodities.
Gold, along with oil, could be among the first to be openedup to foreign players. The free trade zone in Shanghai is set tosee international energy trading by hosting the country's first crude oil futures.
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The Shanghai exchange is looking to launch threeyuan-denominated physical gold contracts, of 100 grams, 1 kg andthe bigger London good delivery bar weighing 12.5 kg, saidanother source who has received a draft prospectus from SGE.
Contract specifications for silver, platinum and palladiumwere also being discussed, though the sources saidspecifications and participants had not yet been finalized. Theexchange is expected to be launched by the fourth quarter.
Even if China lures foreign players, the exchange wouldstill need to see full convertibility of the yuan and enoughliquidity on the exchange before it can be considered to operateon a par with other hubs.
Currently, the London gold "fix" is the benchmark for spotprices, while New York's COMEX contract sets thefutures' benchmark. SGE prices are tracked to gauge Chinesedemand as reflected in premiums or discounts to spot rates.
Earlier this year, China's ICBC - in conjunctionwith its acquisition target Standard Bank - indicated interestin buying Deutsche Bank's seat on the London gold fix but it isnot interested anymore, sources previously told Reuters.
While physical demand has always provided underlying supportto gold prices, speculative trade is what largely drives prices.With China's push for an international physical exchange,physical demand could begin to have a stronger influence.
China overtook India last year as the world's biggest goldimporter and gold jewellery and investment demand was up about athird to a record 1,065.8 tonnes in 2013.
The influx of gold has made SGE the biggest physicalexchange, with a turnover of 10,000 tonnes for its immediate anddeferred delivery contracts, according to Thomson Reuters GFMS.
The Shanghai Futures Exchange has the world's second-mosttraded gold futures contract, though trading is largely limitedto the domestic market with volumes of about 41,176 tonnes lastyear, still well behind COMEX's 147,083 tonnes.
The SGE's international board and the main exchange couldeventually be merged when the yuan is fully convertible, AlbertCheng, managing director of the World Gold Council's far eastregion, said.
"That would become a very important exchange in the world,and Shanghai will truly become one of the three internationalgold centres after New York and London," he said. "No doubt, theparticipation in the international market is the key effort ofthe SGE and the current administration." (Editing by Ed Davies)
