* Imports seen falling sharply in June, July
* No further actions planned for now to curb buying
* Not clear if other funds will follow Reliance move (Adds quotes, context, import levels)
By Siddesh Mayenkar and Krishna N Das
MUMBAI/NEW DELHI, June 21 (Reuters) - Reliance Capital abruptly halted gold sales and investments in its gold-backed funds on Friday, the latest squeeze on rampant demand that has prompted India to try to curb imports.
India is the world's biggest gold buyer and soaring imports have sent its current account to a record deficit. New Delhi has hiked import duty twice since Jan. 1, doubling it to 8 percent, but central bank moves to tackle supply have had more impact.
Reliance, controlled by billionaire Anil Ambani, said in a statement on Friday it was "committed to support all policy objectives of the government and the RBI."
Imports could fall sharply in June and July, industry players say, because customers must now pay up front for gold, making it hard for the millions of small family shops who account for most of India's jewellery business to buy.
"Sales in June, July, August will be a super-flop. Imports will be down 50-60 percent from the normal average of 70 tonnes," said Kumar Jain, vice-president of the Mumbai Jewellers Association, which represents over 10,000 jewellers.
Gold imports, second only to oil for India, hit a record 162 tonnes in May as global prices fell, prompting a surge in retail buying everywhere. India's big bullion banks and traders stocked up in anticipation the authorities would move to slow buying.
"Everybody made money during the demand surge in May," said a Delhi-based importer who requested anonymity. "The margin was very good. We used to do 10 kilos a day ... double normal value."
The government last raised import duty on June 5 and in the same week, the Reserve Bank of India (RBI) tightened measures further to ban all purchases except with cash.
Gold imports were a record 162 tonnes in May, averaging around $135 million in the first half before the central bank halted most credit purchases. After that, they shrank to $36 million a day, the country's finance minister said on June 13.
"Now huge funds are required to import," said the Delhi-based gold importer. "With funds for 100 kilos, I could import 1,000 kilos," he added. Previously only a 10 percent deposit was required to secure supplies.
The government's import duty hike, meanwhile, has been largely wiped out by price falls, as global weakness drags domestic futures down. With the rupee at record lows, paying for Indian gold in dollars is cheaper now than it was in the splurge of mid-April to mid-May.
On April 16, domestic gold futures hit a contract low of 25,270 rupees per 10 grams - which then equated to about $467. Now, they equate to around $452 per 10 grams.
This week, a senior finance ministry source said India was unlikely to ban gold imports entirely or increase duties further. Finance Minister P. Chidambaram resorted to urging Indians not to buy, suggesting six months of abstinence could help the economy dramatically.
But on Friday, neighbouring Sri Lanka slapped a 10 percent duty on gold imports to halt smuggling into India - a major worry when the government raises duties.
And although Reliance's financial services company is a small player in the gold market with sales of around 5 tonnes of gold coins in the last financial year, there are indications other companies may be taking similar action.
"We are helping the government by telling everyone not to buy gold," Kishore Zaveri, owner of Zaveri and Co which imported about 2 tonnes in the May frenzy, told Reuters recently. "I don't do any business, so I'm going to Spain for a holiday."
Demand from retail customers is also likely to be muted in a lean season for marriages and festivals, traditional times to give gold as gifts. Any boost to savings from farmers who could reap the rewards of a heavier-than-normal monsoon will not filter through until harvests later in the year. (Additional reporting by Abhishek Vishnoi, Himank Sharma and Suvashree Dey Choudhury in MUMBAI; Editing by Ruth Pitchford)