SHANGHAI/HONG KONG, March 1 (Reuters) - Short positions in China's stock market shrank by a third in February to their lowest in more than three years, reflecting measures by regulators to curb speculation and boost investor confidence.

China's blue-chip CSI300 Index has bounced nearly 14% from five-year lows it hit last month as selling pressure eases in the face of government stabilisation efforts, though economic growth still appears fragile.

The balance of stocks investors have borrowed to sell short slumped to 43.5 billion yuan ($6.04 billion) at the end of February, a third of the level at the end of January and the lowest since July 2020, according to data from China Securities Finance Corp, a state firm providing margin financing services in the market.

The data, however, does not capture other short positions via derivatives or stock futures.

As part of a raft of measures to revive the market, China's securities watchdog last month suspended brokerages from borrowing shares for lending to short-sellers. In addition, investors were banned from short selling stocks bought on the same day.

The China Securities Regulatory Commission (CSRC) has said its policies are aimed at creating a fair playing field in a market where retail investors account for the lion's share of trading.

Brokerages such as CITIC securities, GF Securities and China Securities have followed the regulator's advice and said they would restrict short-selling activities.

Wei Mingsan, general manager of Zhejiang DeepWin Asset Management Co said that the restrictions made it impossible for fund managers to conduct the 'T+0' i.e. an intraday trading strategy.

Fund managers have denounced the moves.

Yuan Yuwei, a hedge fund manager at Water Wisdom Asset Management, said the curbs made it increasingly difficult to trade the so-called equity long-short strategy, in which a fund seeks to buy outperforming stocks while shorting underperforming ones.

"Both long and short are good for value investment. Without short-selling, the market could be vulnerable to more volatility," Yuan said, arguing regulators should go after market manipulators, not short sellers.

The debate shows Chinese regulators are walking a tightrope between efficiency and fairness as they tighten scrutiny over short-selling, leveraged trades and high-frequency trading.

"This regulatory vigilance makes sense in the context of keeping markets stable," said Kher Sheng Lee, Asia-Pacific co-head of AIMA, a lobby group representing fund managers in over 60 countries.

"Yet, it's crucial to strike a delicate balance between regulation and free markets." (Reporting by Jason Xue and Summer Zhen; additional reporting by Samuel Shen; Editing by Kim Coghill and Vidya Ranganathan)