August 26, 2019 / 2:39 AM / 7 months ago

RPT-China's yuan, stocks slump as trade dispute escalates

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SHANGHAI, Aug 26 (Reuters) - The Chinese yuan slumped to a fresh 11-year low against the dollar on Monday and stocks fell in the wake of fresh salvos in the China-U.S. trade war.

The onshore yuan sold off 0.6% in early trade to 7.15 per dollar, its weakest since February 2008, marking its second biggest one-day drop of the month. The offshore yuan fell to its weakest level on record at 7.1850 per dollar.

The yuan has fallen some 3.6% so far this month as trade tensions between Beijing and Washington worsened.

On Friday, U.S. President Donald Trump announced the additional duty on some $550 billion in targeted Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods.

"This tit-for-tat escalation shows how unlikely a trade deal and de-escalation have become," Louis Kuijs, of Oxford Economics, wrote in a note late on Sunday.

"The impact of the new tariffs on China’s economic growth will be sizeable."

The benchmark CSI300 Index was down 1.3% by 0230 GMT, while the Shanghai Composite Index had fallen 1.2%. Chinese 10-year Treasury futures rallied 0.3% in early trade on Monday.

In the short-term, the escalation in the China-U.S. trade spat will further curb investors' appetite for risk and has pushed investors to seek shelter, Tebon Securities noted in a report.

Hong Kong's Hang Seng Index dropped 3% in morning trade, potentially also reflecting anxieties over a flare-up in violent anti-government protests in the city.

Protests on Sunday saw some of the fiercest clashes yet between police and demonstrators since violence escalated in mid-June over a now-suspended extradition bill that would have allowed Hong Kong people to be sent to mainland China for trial.

On Monday, the Chinese central bank injected 150 billion yuan worth of funds into the financial system via its medium-term lending facility, or MLF. It kept the interest rate on the instrument unchanged at 3.3%.

Markets had expected the PBOC to keep key liquidity rates steady this week, but a cut is expected by mid-September after a policy review by the U.S. Federal Reserve, as Beijing steps up efforts to lower borrowing costs to support growth.

Investors are closely watching for any further economic support measures from Beijing as the trade war drains confidence, dents business profits and hurts overall growth. (Reporting by John Ruwitch, Winni Zhou and Liu Luoyan in Shanghai, and Noah Sin in Hong Kong; Editing by Sam Holmes)

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