As the daily drumbeat of official announcements aimed at propping up the sinking equity market continued, state news agency Xinhua said police would investigate "malicious" short selling of stocks, and the banking regulator said it would allow lenders to roll over loans backed by stocks.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2 percent in early trading, while the Shanghai Composite Index gained 1 percent. Both had tumbled around 6-7 percent on Wednesday.

More than 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilise the financial system is now a bigger risk than the crisis in Greece.

Indeed, the Obama administration is worried the stock market crash could get in the way of Beijing's economic reform agenda.

"The concern, that is a real one, is what does it mean about long-term growth in China," U.S. Treasury Secretary Jack Lew said on Wednesday at an event in Washington on financial stability.

"How do Chinese policymakers respond to this, and what does it mean in terms of core conditions of the economy?"

In the most draconian support measure so far, the China Securities Regulatory Commission (CSRC) said on its website late on Wednesday that holders of more than 5 percent of a company's stock would be barred from selling for the next six months.

The CSRC, which warned earlier on Wednesday of "panic sentiment" gripping a market dominated by ordinary retail investors, said it would deal severely with any shareholders who violated the latest selling restriction.

The prohibition is also seen applying to foreign investors with stakes in Shanghai- or Shenzhen-listed companies, although most of their holdings are below 5 percent.

Separately, major shareholders of top Chinese banks including ICBC and companies including Sinopec pledged to either maintain their holdings or increase their stakes in the companies.

Reform Agenda

The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth.

Beijing, which had made handing a larger role to market forces a centrepiece of its economic reform agenda, has rolled out a battery of measures to support the stock market, including an interest rate cut, suspension of initial public offerings and enlisting brokerages to buy stocks, backed by cash from the central bank.

But the barrage of emergency measures had done little to arrest the slide in a market that has begun to seize up, with around half the companies listed on Shanghai and Shenzhen exchanges opting to escape the rout by having their shares suspended.

China's Finance Ministry and state investor Central Huijin Investment Ltd pledged not to reduce their shareholdings in the country's Big Four banks - Industrial and Commercial Bank of China Ltd (ICBC), China Construction Bank , Agricultural Bank of China Ltd and Bank of China Ltd .

Sinopec Corp, Asia's largest oil refiner, said in a filing on Wednesday that its controlling shareholder Sinopec Group had increased its stake in the listed company by buying 46 million domestic "A" shares in Shanghai, or 0.04 percent of the total issued share capital.

China's stock market is still smaller than those of many developed countries relative to GDP, which analysts say could limit the impact of the turmoil on the real economy.

Nevertheless, commodities that are sensitive to the outlook for the world's second biggest economy have been hit, with copper prices touching a six-year low on Wednesday and iron ore tumbling to a 10-year low.

China's cabinet said on Wednesday it planned to spend 250 billion yuan ($40.3 billion) to foster growth in areas of the economy most in need of support and would accelerate construction of big public services projects.

China has orchestrated brokerages and fund managers to promise to buy billions of dollars' worth of stocks, helped by a state-backed margin finance company that the central bank pledged on Wednesday to provide sufficient liquidity.

The securities regulator said on Thursday the Securities Finance Corp would also use money to subscribe to mutual funds.

"As many assets at financial institutions such as brokerages and publicly raised mutual funds are related to banks, the safety of such institutions will effectively prevent risk at the stock market from spreading to the banking system," said Guo Yanling, senior stock analyst at Shanghai Securities.