Taiwan will allow mainland China's institutional investors to invest up to $500 million in the island's stock market, the government said Saturday, in its latest step to relax control on trade and investment with its rival, reported Rueters.

Starting Monday, Chinese institutional investors can buy shares in Taiwan's stock market, with purchases by any single investor limited to $80 million, the Financial Supervisory Commission said.

The current investment cap would amount to less than 5 percent of the total capitalization of the mainland Chinese institutional investors approved by mainland authorities, short of the 10 percent analysts had expected.

In an effort to stabilize local financial markets, Taiwanese authorities have in recent weeks tried to halt an influx of foreign capital that has driven up local shares prices and currency.

The combined Chinese ownership will be limited to 10 percent in financial, natural gas and other government-controlled firms, and 8 percent in shipping firms, the commission said.

Buying shares in local airlines, telecom, real estate and broadcasting firms will be barred, the regulator said in a statement posted on its Web site.

The announcement came as a memorandum of understanding signed between the sides took effect, allowing the establishment of banking, securities and insurance firms in each other's territory.

Also on Saturday, the Bank of China, the country's largest foreign exchange lender, said in Beijing it will submit an application to open its first branch in Taiwan, with an initial management team of 20 to 30 staff, according to a statement on the bank's Web site.