China last night released long-awaited guidelines that are expected to curb much of the red-chip share activity which has helped propel the Hong Kong stock market to record highs. In a surprise move announced a few hours after the Hang Seng Index closed at a new peak, the State Council said it would impose tough restrictions on purchases of mainland assets by red chips - well-connected companies listed and based in Hong Kong but backed by Chinese government agencies. The new rules, which have been rumoured for weeks but were not expected to emerge ahead of the handover for fear of hurting sentiment here, will also restrict the listing of such companies on overseas markets. Red chips have generated much of the excitement on Hong Kong's share market this year, and were also much in evidence in yesterday's record surge. Their prices have rocketed as investors gamble that they will buy assets at discounted prices from their mainland parents. According to the five-point rules reported by Xinhua (the New China News Agency) last night, Beijing is to set a quota for red-chip listings or asset injections. Any form of mainland asset transfer abroad will also require several layers of approval from relevant ministries and domestic regulators. 'Recently, many organisations and firms have caused negative influence by transferring mainland assets in various guises for overseas listings,' the official notice said. The news followed a record day on the local market, which was driven by a flood of buying linked to the handover and speculation that the market would see more China-linked deals for Hong Kong firms. The Hang Seng Index surged 4.46 per cent, or 647.87 points, to a new closing high of 15,154.36, smashing the previous record close of 14,990.9, set on June 2. The explosive rally - the biggest points gain ever - was led by Hang Seng Bank, which leapt 13.17 per cent on talk that a mainland-backed group was set to buy a stake in the company. Asia Equity head of Hong Kong research Robin Hammond said: 'This is the most irrational market I've seen since '87, except for the few weeks around June 4, 1989.' The market headed in the other direction in 1987 and 1989, when investors bailed out as negative sentiment from the US and China spilled over to Hong Kong. Yesterday, the wave of mainland and local money also sent turnover to a new high, with international investors effectively sidelined. Turnover was a huge $26.59 billion, replacing the $26.47 billion record, also set on June 2. The Hang Seng Bank rumours - and a record close on the Dow Jones overnight - sent the blue-chip index sharply higher in the opening minutes of trade.