* Designation on list had been obstacle to better ties
* Symbolic move has limited practical effect on sanctions
* Only Iran, Sudan and Syria remain on the list (Adds details, criticism, paragraphs 5, 9, 12, 16-17)
By Daniel Trotta and Arshad Mohammed
HAVANA/WASHINGTON, May 29 (Reuters) - The United States formally dropped Cuba from a list of state sponsors of terrorism on Friday, an important step toward restoring diplomatic ties but one that will have limited effect on removing U.S. sanctions on the Communist-ruled island.
President Barack Obama had said on April 14 he would drop the former Cold War rival from the list, initiating a 45-day review period for Congress that expired on Friday.
Obama ordered a review of Cuba's status on the terrorism list as part of a landmark policy shift on Dec. 17, when he and Cuban President Raul Castro announced they would seek to restore diplomatic relations that Washington severed in 1961, and work toward a broad normalization of ties.
Removal from the list is more symbolic than of practical significance.
It ends a prohibition on U.S. economic aid, a ban on U.S. arms exports, controls on "dual-use" items with military and civilian applications, and a requirement that the United States oppose loans to Cuba by international financial institutions such as the World Bank and International Monetary Fund.
But those bans remain in place under other, overlapping U.S. sanctions, since Cuba is still subject to a wider U.S. economic embargo that has been in place since the early 1960s.
"As a practical matter, most restrictions related to exports and foreign aid will remain due to the comprehensive trade and arms embargo," said a U.S. official on condition of anonymity.
The official said Cuba's removal might make private companies and banks more open to doing authorized business with Cuba.
Cuba had cited its designation as a state terrorism sponsor as an obstacle to re-establishing diplomatic relations and upgrading their so-called interests sections in Havana and Washington into full-blown embassies.
The two sides have held four rounds of high-level negotiations since December and say they are closing in on a deal to reopen the embassies. The State Department must give the U.S. Congress a 15-day notice before opening an embassy.
Washington put Cuba on its terrorism blacklist in 1982, when Havana supported armed guerrilla movements in Latin America.
That support ended with the 1991 collapse of Cuba's close trade and aid benefactor, the Soviet Union, but Cuba stayed on the U.S. list. Only Iran, Syria and Sudan now remain on it.
The December announcement by Obama and Castro sought to end decades of animosity between the United States and Cuba that followed the 1959 Cuban Revolution, when rebels led by Fidel and Raul Castro toppled U.S.-backed dictator Fulgencio Batista. Relations soured quickly as Havana confiscated U.S. property and drew close to the Soviet Union.
Flashpoints included a failed U.S.-backed invasion of Cuba by Cuban exiles in 1961 and the basing of Soviet missiles on the island, only 90 miles (145 km) south of Florida, that nearly triggered a nuclear war in 1962.
Obama, a Democrat, has asked the Republican-controlled Congress to lift the 53-year-old U.S. economic embargo against Cuba, but the Republican leadership in Congress has resisted calls to remove what has been a pillar of U.S. foreign policy under nine previous presidents.
Republican House of Representatives Speaker John Boehner and potential presidential candidate Jeb Bush criticized the White House's removal of Cuba from the terrorism list, accusing it of making concessions without demanding that Havana improve its human rights.
"President Obama seems more interested in capitulating to our adversaries than in confronting them," Bush said, calling the move "a mistake" and urging congressional pressure on Cuba.
Congress also is considering an end to the U.S. travel ban. Obama has eased restrictions on Americans making authorized trips to Cuba, but general tourism to the Caribbean island remains illegal.
Two major obstacles to normal overall ties are the embargo and the U.S. naval base at Cuba's Guantanamo Bay, which the United States has leased since 1903. Cuba wants the 45 square mile (116 square km) area returned as its full sovereign territory.
Raul Castro, 83, took over as president in 2008 after ill health forced his older brother Fidel, now 88, to step aside. (Reporting by Daniel Trotta in Havana and Arshad Mohammed in Washington; Editing by Bill Trott and Frances Kerry)