* Beijing tightens supervision over money market funds
* China limits daily cash redemption of such funds at 10,000 yuan
* Aim is to protect investors, create a 'fair playing ground' (Adds details, background)
SHANGHAI, June 1 (Reuters) - Regulators moved to curb feverish growth of China's $1.2 trillion money market funds market, unveiling rules on Friday to limit instant redemption of withdrawals, tighten supervision of fund distribution and battle any threat of "systemic instability".
The guidelines seek to "protect investor interest and create a fair playing ground", the China Securities Regulatory Commission (CSRC) said in statement on its website.
CSRC said some fund managers are "blindly expanding their businesses, with marketing hypes that mislead investors to expect unlimited liquidity, blinding investors of the risks of money market funds."
The misleading "could trigger liquidity risks in extreme market conditions, and threatens to cause systemic instability," it said.
The CSRC said the rules limit instant redemptions of withdrawals - which let individual investors get cash on the same day - at 10,000 yuan ($1,560) from a single money market fund. No ceiling has been put on overnight redemptions.
The CSRC did not name any firms in its statement.
China's fund market is dominated by Yu'e Bao, the roughly $265 billion money market fund controlled by Alibaba Group's Ant Financial.
In December, Yu'e Bao announced it was capping the amount users could invest per day at 20,000 yuan.
The CSRC said institutions without proper licenses are banned from marketing money market funds via the Internet, while "discriminative, exclusive, and bundled" sales would also be prohibited.
The rules, which take effect immediately and were published jointly with the central bank, are the latest measure by regulators to rein in growth of a market that's doubled in size over the past year, fanning concerns that a stampede by investors could trigger systemic financial risks.
Money market funds, which competes with banks for deposits, invest in money market instruments including financial bonds, treasuries, corporate bills and interbank deposits.
The government has already taken steps since the end of 2017 to cool the market, urging individual fund companies to cap daily redemptions through window guidance.
In signs that government curbs are working, the combined size of China's money market funds shrank by 6 percent in March from February, following a doubling in net assets the previous year.
Yu'e Bao, integrated with Ant Financial's popular payment app Alipay, saw its net assets jump more than 40 percent to 1.69 trillion yuan during the first quarter.
$1 = 6.4126 Chinese yuan Reporting by Zhang Xiaochong and John Ruwitch; Writing by Samuel Shen; Editing by Richard Borsuk