* Swiss ban trading of Swiss shares on EU bourses from January
* Measure void if EU extends recognition of Swiss bourse rules
* Row emerges as Swiss put off decision on new EU treaty (Adds European Commission statement)
By Michael Shields
ZURICH, Nov 30 (Reuters) - The Swiss government announced plans on Friday to ban trading of Swiss shares on European Union stock exchanges from January, in an escalating row with Brussels that could put a severe dent in cross-border stock trading.
Frustrated by a lack of progress on a new bilateral treaty it wants, Brussels has said that as of Dec 31 it will withdraw its recognition of Swiss stock market regulations that allows EU-based investors to trade in Switzerland.
In a tit-for-tat response, the Swiss government said in June it would ban by decree trading of Swiss shares on exchanges in the EU. The ordinance it unveiled on Friday puts that plan into effect unless the European Commission recognises Swiss regulatory equivalence by the start of next year.
"The government's aim and the best solution for all affected market players in Switzerland and abroad remains a swift and unlimited extension of stock market equivalence," it said.
In Brussels, the European Commission said: "We will examine and assess the situation, including on the equivalence decision and the countermeasures and discuss possible next steps in view of developments as regards the institutional framework agreement in the coming days and weeks."
The divided Swiss government put off until next week a decision on whether to endorse the draft EU treaty negotiated for more than four years that has drawn opposition from both the anti-EU right and normally pro-Europe centre-left parties.
Heavyweights like Nestle, Novartis, Roche , UBS and Zurich Insurance make the SIX Swiss Exchange the fourth-largest in Europe with listed companies worth around $1.6 trillion.
Trading turnover was 1.35 trillion Swiss francs ($1.35 trillion) last year.
Drawing trade back to Switzerland could boost Swiss volumes, at least in the short term. Around 30 percent of trade volume in Swiss stocks is now carried out on other platforms including CBOE Europe, Turquoise and Aquis.
But longer-term risks loom if companies decide against Switzerland as a place for stock listings given a lack of liquidity from EU banks and brokers.
The Swiss government ordinance requires foreign trading venues to get Swiss recognition for trading Swiss shares. EU trading venues would not qualify, but other venues like New York, Singapore or Hong Kong would.
Swiss bourse operator SIX, which welcomed the government's move, risks losing much of its exchange business if Swiss-EU ties aren't patched up by year's end, SIX's chairman told Reuters in September. ($1 = 0.9996 Swiss francs) (Additional reporting by Oliver Hirt in Zurich and Francesco Guarascio in Brussels; Editing by John Miller)