The official Shanghai Daily, citing a report from the central government's news portal china.com.cn, said on Thursday one of China's largest suppliers to McDonald's and Yum's KFC and had bought sick chicken from farms and sold them to the food outlets - a claim a local government in the central province of Henan said was untrue after a preliminary investigation.

Chinese newspapers and websites have also criticized some domestic firms, but industry experts say multinationals are hotter targets given the high profile of their brands.

"KFC and McDonald's get media attention because they're the biggest fast-food chains in China. Everyone knows them and everyone talks about them," said Tan Xiaoxue, a reporter at Sohu.com Inc's news portal.

"There are some local chains such as Country Style Cooking, but they cannot be compared with international brands, which have much bigger brand recognition and consumer impact."

In the latest chicken scare case, china.com.cn quoted an unidentified official at Doyoo Group - which sells chicken to KFC and McDonald's - plus employees at Doyoo's suppliers as saying chicken that fell ill were slaughtered and shipped to fast food restaurants including the two American giants.

However, the government of Doyoo's home city Hebi said on Wednesday that it had found no evidence of this in a preliminary probe, and authorities were looking into the case more closely.

In response to the china.com.cn report, Yum's China unit said it will closely monitor the situation.

"If Doyoo is found to have committed any wrongdoings, it will be subject to severe punishment," it said via its official microblog account.

Officials at McDonald's in China and at Doyoo could not be reached for comment despite repeated calls by Reuters.

SCATHING EDITORIAL

Last week, Yum warned that sales in China - where it earns over half of its worldwide revenue and operating profit - shrank more than expected in the fourth quarter, citing bad publicity from a government review of its chicken supply.

The firm has been embroiled over the past month in a scare triggered by an official China Central Television report which said some chicken supplied to KFC and McDonald's contained excess amounts of antiviral drugs and growth hormones.

On investigation, the Shanghai Food and Drug Administration found the levels of antibiotics and steroids in KFC chicken were safe, though the watchdog found a suspicious level of an antiviral drug in one of the eight samples tested.

Yum apologized last week to customers over the handling of that scare, but state-run Xinhua news agency immediately weighed in with an editorial on Saturday slamming the U.S. firm.

"Yum's understated apology is rooted in its arrogance and propensity for unfairly treating Chinese consumers, who usually regard foreign brands as being safer and of higher quality than domestic brands," Xinhua said.

"Other multinational companies have displayed the same attitude, capitalizing on loopholes in Chinese law and regulations to escape punishment."

Kevin Der Arslanian, a business analyst at China Market Research Group in Shanghai, said the government is taking a firm stance against foreign companies especially in the food sector given high public concerns over safety.

"They are being harsh on them to show that they are aware of these worries when it comes to food safety," he said.

"I don't think it's unfair that they're specifically targeting foreign brands. These foreign brands and KFC in particular have positioned themselves as extremely healthful and extremely high quality, and therefore if there are scandals it is only fair that they be hit the hardest."

Still, not all local news outlets are joining the attack.

Chen Xiaoxiang, a reporter at Hangzhou city newspaper Metropolis Express said his editors chose not to cover the KFC stories because safety violations are a bigger problem for domestic companies.

"We believe that these international companies are already operating in a relatively well regulated way, and compared with many small Chinese workshop-style food chains, they are more trustworthy," he said.

"Their problems are often minor compared with quality problems at many local companies ... Media focus, rather, should be on those ill-regulated Chinese companies."

(Additional reporting by Jane Lee and Shanghai newsroom; Editing by Daniel Magnowski)

• A Permanent Economic Emergency