SHANGHAI/BEIJING (Reuters) -Chinese treasuries fell on Friday after state media said trading accounts must not be borrowed or transferred, following the launch of a probe by regulators into suspected misbehaviour in the country's red-hot bond market.

Borrowed or transferred interbank bond trading accounts could lead to a rise in non-compliant transactions, distort market prices and increase credit risks, a central bank-affiliated newspaper said on Friday.

Chinese regulators this week started investigating small financial institutions over their trading behaviours as the People's Bank of China (PBOC) stepped up efforts to cool a sizzling rally in the treasury bond market.

China's 30-year treasury futures fell as much as 0.7% in early trading on Friday and 10-year bond futures dipped 0.3% at one point. Both instruments are headed for a weekly decline, snapping a four-week winning streak.

Treasury yields, which move inversely to prices, rose across the board on Friday.

The National Association of Financial Market Institutional Investors (NAFMII), an industry body supervised by the PBOC, said late on Wednesday that it would investigate four rural commercial banks over suspected bond market manipulation.

NAFMII said on Thursday it found misbehaviour in bond trading by some small financial institutions involving borrowed accounts and had reported some serious rule-breakers to the central bank for punishment.

Borrowing, or allowing the use of trading accounts by non-owners in return for a rental fee, "often involves non-compliant money flows and potential transfer of interest," the Financial News said.

It would further distort market prices and could also increase credit risks because account owners cannot control transactions, said the newspaper, seen as a mouthpiece for the central bank.

NAFMII in April probed some small financial institutions over trading misbehaviours such as account borrowing, according to the newspaper.

Staff of some financial institutions colluded with external players and conducted illegal activities based on expectations that treasury yields will drop, the article said.

The central bank has repeatedly warned against reckless buying in a bond rally driven by a dismal economic outlook, worried about a potential bubble that could end up in a Silicon Valley Bank-style crisis.

The PBOC also said it aims to maintain an upward sloping yield curve to help provide positive incentives for investment.