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.

In what was at least a temporary reprieve, the CSI300 index of the largest listed companies in Shanghai and Shenzhen jumped 5.8 percent in morning trading, while the Shanghai Composite Index gained 5.3 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 destabilize the financial system is now a bigger risk than the crisis in Greece.

"We are inclined to believe that Beijing will escalate policy responses until they start working," said economists at Credit Suisse in a research note.

"If market conditions do not stabilize, we expect a statement of 'whatever it takes' from the Chinese government, given that social stability is at stake and financial systemic risks are evident."

The United States has voiced worries the stock market crash could get in the way of Beijing's economic reform agenda.

"NATIONAL TEAM" TO THE RESCUE

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 centerpiece of its economic reforms, has responded with 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.

The Global Times, an influential tabloid published by the Communist Party's official newspaper, invoked the "national team" in an editorial rallying support behind the authorities' efforts to arrest the slide.

"While there are disaster victims everywhere in China’s stock market, the other scene is that the 'national team' is truly taking action," the paper said.

In the most draconian 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 restriction.

The prohibition is unlikely to have much impact on foreign investors. No Qualified Foreign Institutional Investor (QFII), one of the main channels of foreign investment in China, holds more than a 5 percent stake in a Shanghai or Shenzhen listed company. Foreign investors who hold more than a 5 percent stake in Chinese firms are all strategic investors.

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.

"BIG FIST" WAVED AT SHORT SELLERS

In the latest salvo against short sellers, who bet on falling prices, Xinhua said in a post on its official microblog that the authorities would "punch back" with a "big fist" against illegal activities, without giving any details.

By Wednesday, the market had 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.

But China's stock market is still smaller than those of many developed countries relative to GDP, and equity financing only accounts for a small portion of companies' capital funding.

"Even if the sell-off in Chinese mainland equities continues for a while, we doubt it will have a major adverse effect on China's economy," David Rees, economist at Capital Economics, wrote in a note.

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 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.