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CORRECTED-UPDATE 1-China relaxes M&A rules for insurance industry

(Corrects to make clear new rules apply to insurers with competing product lines)

SHANGHAI, April 8 (Reuters) - Insurers in China, including Chinese-based foreign insurers, will be allowed to buy stakes in more than one peer that competes in the same product lines, according to new rules issued by the Chinese insurance regulator.

The rules, which will allow stronger firms to invest in weaker players, were published on the China Insurance Regulatory Commission's (CIRC) website and dated last Friday.

Current regulations restrict insurers from buying stakes in more than one peer that competes in the same products.

"The new rules are aimed at promoting an optimal structure for the insurance industry and enhancing competitiveness...," a CIRC spokesman said in a separate statement on the website.

Rapid growth in China's insurance industry and investment into risky local infrastructure and housing projects have weakened the position of smaller insurers in particular, according to Bernstein research.

(Reporting by Lu Jianxin and Pete Sweeney; Additional reporting by Lawrence White in HONG KONG; Editing by Shri Navaratnam and Mark Bendeich)