Details on how fund managers will be allowed to invest China's state pension funds in the country's stock markets emerged on Tuesday, boosting share prices.

Shanghai B-shares closed 2.4 percent higher while local currency A-shares edged up 1.3 percent as the news fuelled investors' hopes an injection of pension funds would increase market liquidity.

State Social Security Fund board chairman Liu Zhongli said the Ministry of Finance recently issued the regulations on trustee investment of state social security funds, the China Securities Newspaper said.

Under the rules, fund management companies and bodies will have to meet certain conditions including getting approval from the China Securities Regulatory Commission.

The fund managers will require actual capital and net assets of no less than 50 million yuan (US$6 million) and, unless they have consistent experience of fund-management overseas, at least two years' experience of fund management in China.

According to a report in the People's Daily newspaper, Liu also said the interim management rules on the investment of the state social security funds, to be issued soon, require no less than half of the social security fund's total assets to be denominated in cash and treasury bonds.

The rules also stipulate that at least 10 percent of the security fund's assets must be in bank deposits and no more than 10 percent in corporate and financial bonds.

Up to 40 percent can be invested in securities funds and shares, the report added.

"The news gave the market a psychological boost, because recently the accelerated pace of fund-raising activities has weighed on investor morale," said Tiantong Securities analyst Jiang Feng.

Investors have been jittery that a flood of initial public offerings and a large scale sell-off of state-owned shares will severely dilute market liquidity.

The government owns around 70 percent of the shares in China's listed companies but wants to whittle down its stake in coming years.

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