(OFFICIAL)-UPDATE 2-Greek stock market to reopen Monday after five-week shutdown

(Corrects in para 11 to say volatility limit will remain at 30 pct (not be cut to 20 pct) following official correction from stock exchange spokeswoman)

* Capital (Other OTC: CGHC - news) controls shut down bourse on June 29

* Local investors barred from using bank deposits to buy

* Trade will be unrestricted for foreign investors

By Lefteris Papadimas and Angeliki Koutantou

ATHENS, July 31 (Reuters) - Greece's stock market will reopen on Monday after a five-week shutdown caused by capital controls, but local investors will face restrictions aimed at stemming capital flight, a bourse spokeswoman said on Friday.

The Athens Stock Exchange (ASE) has been shut since June 29, when the government closed banks and imposed strict limits on withdrawals and foreign transfers to avert a run on deposits.

The Finance Ministry cleared the way for the exchange to resume operations by issuing a decree setting out new trading rules for local investors. There will be no restrictions on foreign investors.

"After the finance minister signed the relevant decree earlier today, the Athens Stock Exchange board ... decided to reopen the markets of Athens Stock Exchange on Monday, August 3," the spokeswoman said.

Traders and exchange officials had hoped the exchange would be able to reopen this week after the European Central Bank gave Greece the green light to allow normal operations by foreign investors, with some limits for local investors.

Under the ECB-approved plan, local investors will be allowed to buy shares with existing cash holdings, but not to withdraw money from their Greek bank accounts to buy shares.

Some market participants had warned that unlimited trading for domestic investors would have posed a serious risk for lenders by accelerating capital outflows.

Local brokerages, however, criticised the curb on the use of local bank deposits for buying securities, saying it risked distorting the market.

"We strongly oppose any capital controls related to the use of existing funds deposited in the Hellenic banking system," the Association of Members of the Athens Exchange said in a statement.

"The restrictions imposed only on the transactions of purchase of securities, while leaving the transactions of sales free and unrestricted, will clearly favour the sales rather than the purchases of financial instruments thus creating market imbalance," it added.

Trading in all stocks including banking shares will be allowed and volatility limits will remain unchanged at 30 percent, the bourse spokeswoman said.

Technical glitches at local banks, which will be required to enforce the trading restrictions, had further complicated the exchange's reopening and many securities traders took an early summer holiday during the closure. (Additional reporting by Lefteris Karagiannopoulos; Writing by Helen Popper)