BEIJING/SHANGHAI, March 6 (Reuters) - China's top securities regulator vowed on Wednesday to protect small investors by cracking down on market misbehavior and improving the quality of listed companies to revive confidence in the country's stock markets after a punishing three-year slump.

Wu Qing, the newly-appointed chairman of the China Securities Regulatory Commission (CSRC), also said authorities would address deep-rooted issues in the world's second-biggest stock market to make it more appealing to long-term investors.

"Protecting investors, especially small investors, is regulators' most important, core mission," Wu told a press conference in Beijing.

"We must pay high attention to fairness ... especially in a market dominated by small investors."

Wu made the comments in a rare joint briefing by some of China's top economic and regulatory officials on the sidelines of the annual parliament meeting. It was his first public appearance before the press since he was named to the post in February.

China's stock market had fallen for three consecutive years, pressured by a slowing domestic economy, extended regulatory crackdowns on popular sectors like technology, a deepening property crisis, capital outflows and rising political tensions with the West.

The blue-chip CSI300 Index hit five-year lows in early February. Soon after, the government ousted former CSRC Chairman Yi Huiman and appointed Wu, a veteran regulator, to take his place.

The CSI300 has rebounded roughly 14% since, after the securities watchdog ramped up efforts to restore confidence, including tighter scrutiny over quantitative trading, and fresh curbs on short selling. Suspected state-linked buying has helped as well.

"We will clamp down hard on fraud, market manipulation and insider trading," Wu said on Wednesday.

"We will also open our eyes wider to problematic institutions, and dispose of various risks early," said Wu, who had been nicknamed the "broker butcher" for his tough crackdowns on ailing brokers in past regulatory roles.

CORNERSTONES

To improve the quality of listed companies - also a cornerstone of China's capital markets - Wu said regulators will raise the bar for initial public offerings (IPOs), disqualified companies and clamp down on illegal share sales by big shareholders.

"We will forcefully keep fraudulent companies out of the capital market," Wu said, adding the CSRC will boost on-site inspections and lift the cost for law-breakers.

Regulators will also push delistings so that "companies can come and go."

The watchdog will also close regulatory loopholes that allow big shareholders to reduce holdings illegally, and punish companies that are too grudging to pay dividends.

Regarding regulators' attitude toward quant funds - which trade using data-driven computer models - Wu said that it was necessary to strengthen supervision.

Over the past month, the CSRC has punished several quant fund managers for disrupting market order. The watchdog also tightened regulations over program and high-frequency trading, saying such strategies could heighten market volatility.

"We need a better capital structure. The market needs both short-term and long-term money, but we need long-term capital more," Wu said.

Wu also said regulators don't interfere with market operations in normal situations, but "if the market seriously deviates from fundamentals, suffers from irrational volatility and liquidity crunch, as well as panic and depletion of confidence, we will resolutely act."

China's stock exchanges restricted share selling by some hedge funds in early February, when a sell-off in small-caps turned into a stampede that inflicted record losses for some hedge funds in what some call a "quant quake." (Reporting by Kevin Yao in BEIJING and Shanghai Newsroom; Editing by Jacqueline Wong and Kim Coghill)