March 25 (Reuters) - Intel and Advanced Micro Devices fell more than 2% on Monday after a report that China would limit the use of their chips and servers in government computers, potentially threatening billions of dollars in sales for the U.S. companies.

The Financial Times reported over the weekend China has introduced guidelines to phase out U.S. chips from the companies and also wants to sideline Microsoft's Windows and foreign-made database software in favor of domestic options.

Beijing been trying to reduce its reliance on foreign firms by building out its local semiconductor industry as it grapples with U.S. export curbs on technology including cutting-edge chips.

The latest move could make a big dent on the chip firms' earnings as China was Intel's largest market in 2023 with 27% of revenue, while AMD drew about 15% of its sales from the country.

Microsoft, whose shares were down about half a percent in premarket trading, does not break out its revenue from China.

"A total cessation of China governmental purchases of Intel and AMD CPUs might impact revenue by low-single digits," said Bernstein analyst Stacy Rasgon, predicting a hit of up to $1.5 billion for Intel and a few hundred million dollars for AMD.

But he said Intel could face a higher hit to its profit - of mid-single digits to low-double digits, "given higher exposure and the vagaries of a worse cost structure".

Intel, AMD and Microsoft did not respond to Reuters requests for comment. The chip firms were on track to shed a combined $11 billion in market value based on premarket movements.

China's industry ministry had in late December issued a statement with three separate lists of central processing units, operating systems and centralized database deemed "safe and reliable" for three years after the publication date, all from Chinese firms, Reuters checks showed.

Apple has also been caught up in rising Sino-U.S. tensions, with Bloomberg News reporting in December that Chinese agencies and state-backed firms have asked their staff to not bring iPhones to work.

(Reporting by Aditya Soni in Bengaluru; Editing by Arun Koyyur)