Investors have traditionally seen bonds issued by state-owned firms as less risky due to their perceived government backing. But the recent delinquencies triggered a selloff in debt issued by state firms in impoverished provinces, raising fears of a brewing credit crisis.

"Once the credit environment is destroyed, it's very difficult to rebuild confidence," wrote Qu Qing, an analyst at Jianghai Securities, highlighting a risk that investors will desert credit bonds for Chinese government bonds and policy bank bonds if the situation deteriorates.

The nervousness also spilled into the stock market, where Chinese banking shares fell over concerns they would face increased bad loans.

Executives from the state parent of mine operator Yongcheng Coal & Electricity Holding Group Co met major creditor banks in Henan province on Friday.

Local officials from China's central bank and banking and state asset regulators were also present, according to a notice seen by Reuters and state media.

The meeting is taking place three days after the coal miner failed to make principal and interest payments on 1 billion yuan ($151.02 million) in commercial paper.

News of the meeting did little to ease investor concerns, as credit woes at a slew of state borrowers, including integrated circuit maker Tsinghua Unigroup Ltd and automaker Huachen Automotive Group, raised regulatory eyebrows and triggered panic-selling in some corners of the bond market.

Huachen's bond prices tumbled to around 10 yuan, a tenth of face value. Unigroup's bond prices slumped and the Shanghai Stock Exchange paused trading in some of the company's debt, while shares of its listed unit dropped 10% on Friday.

A number of bond sales have been cancelled over the past few days, while banks have raised the bar for corporate bonds to be used as collateral, traders and a regulatory source said.

In an apparent attempt to ease market nerves, China's central bank injected a net 160 billion yuan into the banking system via open market operations on Friday. But traders remain jittery.

"Market sentiment is really bad this morning. Everyone is so worried that it would evolve into a credit crisis," a bond trader at a Chinese bank said.

A currency trader said there was spillover into the forex market as well, with short-end yuan swap points climbing.

"The market now expects the central bank to just inject more cash to soothe market sentiment."

($1=6.6217 yuan)

(Reporting by Samuel Shen, Andrew Galbraith and Winni Zhou; Editing by Vidya Ranganathan)