Bluestone, which incurred the 500 million yuan ($72.38 million) loss investing in a bond issued by Dalian Machine Tool Group, sued the underwriter Industrial Bank Co and other intermediaries for fraud after the issuer defaulted and admitted to faking credit enhancement measures.

The Beijing Financial Court ruled on the first fraudulent disclosure case in China's interbank bond market on Dec. 30, according to a court statement seen by Reuters on Tuesday.

Bluestone, in a statement to Reuters, welcomed the ruling in its favour saying it was good for the market, but added that the penalty for the fraud was inadequate and unfair.

The ruling "protects investors and the fundamental integrity of the bond market", Bluestone said, while adding that the judgement on accountability was "unfair".

"It grossly ignores the fact that false disclosure concealed Dalian Machine Tool's inability to repay debts, and was the root cause of the plaintiff's loss," Bluestone said.

Industrial Bank declined to comment.

Bluestone did not say if it would take further legal action.

The ruling comes as Chinese bond defaults are rising in a slowing economy and a property debt crisis.

Compared with the institution-dominated bond market, China has taken a much harder line against fraud in the stock market, where there are many retail investors.

"As the first case involving false disclosure in China's interbank bond market, the ruling, when effective, will further set the bar for various participating institutions in the bond market," the Beijing Financial Court said in a statement.

"It will also prod institutional investors to invest cautiously and decide rationally."

The court urged underwriters and other intermediaries to make sure that investors can have access to accurate and complete information from bond issuers.

($1 = 6.9080 Chinese yuan renminbi)

(Reporting by Shanghai newsroom; Editing by Robert Birsel)