* CSI300 index loses 1.3 percent as blue-chips weigh
* Shanghai Composite Index closes down 0.9 percent
* Reports of new rules on asset-backed securities underscore regulatory concerns
* Bond market 'relatively stable' but mood remains fragile
By Andrew Galbraith
SHANGHAI, Nov 27 (Reuters) - Heavy selling of blue-chip shares dragged China's stock markets sharply lower Monday, as the spectre of rising borrowing costs hitting company profits haunts investors amid an increasing regulatory crackdown on risky financing.
Selling in China's stock markets last week had been prompted by a rout in the bond market that pushed yields on government treasury bonds to three-year highs, and by fresh moves to reduce risks in the asset management industry that may bring a sea change for banks and millions of small investors.
But while bond market jitters appeared to ease on Monday, stock market investors continued to unload shares in major firms that have enjoyed strong gains in recent weeks.
The blue-chip CSI300 index ended 1.3 percent lower at 4,050.67 points. The Shanghai Composite index was 0.9 percent lower at 3,322.23, while Hong Kong's Hang Seng index was 0.6 percent lower at 29,692.58 by 0725 GMT.
Major internet-of-things supplier BOE Technology , seen as a blue-chip bellwether, tumbled 9.7 percent on news that major shareholders planned to cut their stakes in the company.
Shares in the company had surged 51.6 percent from the beginning of October to their highest closing price in nine years on Nov. 21, but have since plunged nearly 22 percent. "Blue chips have been rising too fast ... and soaring prices of stocks such as Moutai have apparently raised regulatory eyebrows," said Chen Xiaopeng, strategist at Sealand Securities Co, referring to liquor maker Kweichow Moutai.
"In addition, the new guidelines on asset management business have triggered expectations of tighter liquidity."
More regulatory measures may be on the way. Economic Information Daily reported on Monday that regulators are expected to tighten controls on consumer loan asset-backed securities ABS), in the latest move to increase oversight of financial products.
Some analysts said they saw a silver lining in the increased oversight.
"The recent correction in those blue chips stocks due to warnings from government as well as spill over effects from the bond rout may be good to prevent overheating in stock market," OCBC analysts wrote in a note Monday, pointing to the divergent performance of blue-chip stocks and smaller stocks, many of which are in the red this year.