* SSEC +0.7 pct, CSI300 +0.3 pct, ChiNext -5.4 pct
* Utilities, banks rise sharply
* Regulator's announcement hits small caps broadly (Adds stock regulator investigation from Friday)
SHANGHAI, Dec 22 (Reuters) - China stocks closed up on Monday in volatile trade as electrical utilities rose and banks spiked, but gains were capped by news that the stock regulator was investigating a group of small-cap shares.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.3 percent, to 3,394.48 points, while the Shanghai Composite Index gained 0.7 percent, to 3,127.44 points.
However, small-cap shares took hits following the China Securities Regulatory Commission's announcement on Friday that it was looking into illegal stock-price manipulation of 18 shares.
The ChiNext growth company index suffered a 5.4 percent decline, its steepest drop since 2013.
The announcement sparked a wide evacuation from small caps, with 270 company shares hitting their maximum down 10 percent on Monday. That resulted in a nearly 4 percent slide on the Shenzhen board, where most of the companies are listed.
Rumours had been circulating in the market that CSRC was investigating excessive margin trading and other irregularities by market insiders in the aftermath of a dramatic rally in Chinese stock indexes since November.
Among the most active stocks in Shanghai were Bank of China , up 9.9 percent to 3.89 yuan; Agricultural Bank Of China, up 9.9 percent to 3.56 yuan and Minsheng Bank , up 9.1 percent to 10.51 yuan.
In Shenzhen, BOE Technology, up 5.0 percent to 3.34 yuan; Zoomlion Heavy Industry Science and Technology , down 1.6 percent to 6.73 yuan and TCL CORP , up 3.4 percent to 3.92 yuan were among the most actively traded.
Electric utilities shares also outperformed the broader market after local media reported that China might launch an utility reform scheme by the beginning of 2015. GD Power Development Co and Huadian Power International Co both jumped by their 10 percent daily limit.
Foreign investment flowing into Shanghai from Hong Kong through the mutual market access pilot programme took up 1.43 billion yuan of the 13 billion yuan daily quota.
Total volume of A shares traded in Shanghai was 67.8 billion shares, while Shenzhen volume was 24.3 billion shares. (Reporting by Chen Yixin and Pete Sweeney; Editing by Richard Borsuk)