China may delay the launch of a program which will allow brokers to lend money or securities to investors to the third quarter of the year to avoid boosting the already abundant liquidity, sources said on Wednesday.

The stock market regulator said late last year that it was studying proposals for such a program in the nation's stock markets, and that the program would go ahead when the time is right.

But the program's debut had been delayed from a proposed January deadline and it's unlikely to be launched this quarter if the market rally continues, said the people close to the regulator, the China Securities Regulatory Commission.

"There's a unanimous belief among financial authorities that securities lending is beneficial to the capital market in the long term as it can make trading brisker," said a Shanghai-based brokerage source.

"But when faced with such a sizzling market now, regulators are worried that unveiling the new business may spark speculation and worsen investors' jitters over wider stock-price volatility."

The sources noted that at least a dozen mainland brokers have submitted proposals to take part in the program. But the regulator has yet to decide if any of them should get a license for the new business, the sources said.

The benchmark Shanghai Composite Index repeatedly topped all-time highs this week, extending the year's gain to about 30 percent, on the heels of a 130 percent climb in 2006.

The country's stock regulator has pledged to unveil the country's first stock-index futures contracts by the end of June while indicating other market changes such as raising the daily stock trading band are in the pipeline.

Although industry experts said securities lending can bolster market size and help curb equity slumps when short sellers start to cover positions, investors may initially view the program as psychologically negative, the sources said.

"Short selling may equal to some kind of speculation in the minds of several Chinese investors," said a second local source." The regulator is concerned it might provide an excuse to sell and even trigger a big sell-off."

To curb potential risks, the CSRC may require brokers to conduct securities lending through intermediary agencies on a trial basis, according to the sources. The regulator has set up a special task force to organize the creation of such third-party securities finance firms, they said.

The securities lending business will also likely be limited to blue chips initially, the sources said.