China has announced another set of measures to cool the country's overheating stock markets, banning state-owned firms and listed companies from using bank loans or other funds for stock market speculation. The new rules were issued jointly yesterday by the Securities Commission of the State Council, the central People's Bank of China, and the State Economic and Trade Commission. They are aimed at cutting the flow of state funds - including bank loans - into the markets. The new measures also prevent listed firms from using funds raised from public offerings to speculate in stocks, according to a report by Xinhua (the New China News Agency). 'Recently, funds from state commercial banks have continuously flowed into the stock markets through various channels,' Xinhua quoted the joint notice as saying. 'This situation has on the one hand fuelled market speculation and on the other hand put state assets at high risk.' State firms would also be barred from using funds set aside for corporate development to trade in securities, the agency said. State firms and listed companies would not be allowed to lend funds to others to speculate in stocks. Firms which hold stocks for long-term investment purposes have been told to file them with the local stock exchanges. Xinhua said violators of the new rules would be fined and profits from such trading confiscated. Bank loans used in securities trading would be recalled with no new loans extended while senior officials at state firms who violated the rules would be removed. Stock markets were nervous yesterday as analysts said mainland securities regulators were rumoured to have asked the two exchanges to lay the groundwork for extending the settlement period by two days. The rumoured request was in case further measures were required to stem yet another speculative frenzy. Shares transactions are settled a day after execution under the so-called T-plus one book-entry system. The rumour, along with the half-day suspension of Shenzhen Universe Industrial Stock in the morning, sent prices tumbling for the first time in three days. The Shenzhen A-Share Index shed 3.94 per cent and the B-Share Index slipped 2.89 per cent. In Shanghai, the A-Share Index lost 1.94 per cent and the B-Share Index eased 0.13 per cent. Analysts said the Shenzhen market fell sharply after the exchange ordered Shenzhen Universe's directors and its top five shareholders to explain the stock's abnormal price swings. When the shares resumed trading in the afternoon, the stock plunged 10 per cent before regaining some ground to lose 4.67 per cent at 19.98 yuan. Analysts said investors generally were cautious on fears of stiffer action being recommended by the China Securities Regulatory Commission.