You can't execute certain DDL commands directly in routine bodies.
Instead of doing that, try using
EXECUTE IMMEDIATE host-variable;
I tried here with an amended version of your code, and it worked ok:
Code:
create procedure dummyproc1()
begin atomic
declare sqlstm varchar(500);
declare isSEQPresent int;
SELECT COUNT(*) into isSEQPresent
FROM SYSCAT.SEQUENCES
WHERE SYSCAT.SEQUENCES.SEQSCHEMA = 'user' AND
SYSCAT.SEQUENCES.SEQNAME = 'sequence_name';
IF isSEQPresent>=1 THEN
set sqlstm = 'CREATE SEQUENCE DIF_HOURS_SEQ START WITH 1 INCREMENT BY 1';
execute immediate sqlstm;
END IF;
end