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China securities regulator says market forces to play bigger role

A security guard stands at the headquarters building of China Securities Regulatory Commission in Beijing, July 9, 2015. REUTERS/Jason Lee

SHANGHAI (Reuters) - China's securities regulator said on Friday that the government will allow market forces to play a bigger role in determining stock prices, the first official signal from Beijing that it could be moderating its efforts to prop up its equity markets.

However, the regulator also said that it would continue to intervene as necessary to maintain stability and avoid systemic risk.

"With market fluctuations gradually shifting to normal, from wild and abnormal, we should let the market exercise its function of self-adjustment," the China Securities Regulatory Commission told a news conference in Beijing.

However, the watchdog said that China Securities Finance Corp (CSF) - the state margin lender that was tasked with buying shares during the market slump - would continue to play its stabilizing role for the next few years.

The comments are the clearest signal yet that the government could be gradually ending its support measures for the equity market and are likely to be in focus when China's stock exchanges open for trading on Monday.

These measures, which have included a ban on stake sales by major shareholders and liquidity support from the central bank, were aimed at stemming a mid-June market rout, but drew criticism over their bluntness.

The CSRC did not say whether it would halt any specific forms of intervention.

CSRC said on Friday that CSF has recently transferred some shares it bought during the sell-off to Central Huijin, an investment unit of sovereign wealth fund China Investment Corp, and Huijin will become a long-term holder in those stocks.

"Today, CSF transferred some listed companies' shares to Huijin. Huijin will strive to keep and increase the value of the assets, based on long-term investment philosophy," Huijin said in a statement on its website.

When the market experiences abnormal fluctuations and threaten to cause systemic risks, CSF will continue to help stabilise the market using various measures, CSRC said.

(Reporting by Zhang Xiaochong and and Pete Sweeney; Writing by Samuel Shen; Editing by Jacqueline Wong and Rachel Armstrong)