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UPDATE 1-China further relaxes rules for index futures trading

* Foreign investors step up China investments, want more hedging tools

* Margin ratio for small cap index futures to be lowered to 12 pct

* Intraday trading activity limits to be raised, fees lowered (Adds more details, background)

SHANGHAI, April 19 (Reuters) - China's financial futures exchange said on Friday it was further relaxing index futures trading rulesreducing margin requirementscutting fees and allowing more trading activities.

The China Financial Futures Exchange said in a statement the rule change, which will take effect on April 22, is aimed at meeting investors' risk-hedging needs and will help introduce more long-term capital into the market.

The margin ratio for small cap CSI500 index futures would be lowered to 12 percent from 15 percent.

Intraday activity exceeding 500 lots on a single index futures contract would be considered excessive, according to the new guidelines, as opposed to 50 lots previously.

In addition, transaction fees for closing intraday positions will be lowered.

China's stock market has seen a surge of inflows from foreign investors, who have been pressing Beijing to provide more hedging tools and foster a more liquid derivatives market.

China tightened index futures trading rules during the 2015 crash but has been gradually relaxing rules over the past two years. (Reporting by Samuel Shen and Andrew Galbraith Editing by Jacqueline Wong)