* Markets await U.S. trade tariff deadline this week
* Yuan likely to consolidate at current level - trader
* Stocks remain under pressure
By Winni Zhou and John Ruwitch
SHANGHAI, July 4 (Reuters) - China's yuan rose sharply against the dollar on Wednesday, a day after the central bank assured markets it would keep the currency stable amid heightened worries about trade frictions, although stocks fell.
Chinese currency and equity markets have been volatile ahead of July 6, when U.S. tariffs on $34 billion worth of Chinese goods are set to kick in. Beijing has said it would retaliate with tariffs on U.S. products.
The yuan had its worst month on record in June, losing about 3.3 percent of its value against the greenback, and the slide continued on Monday, the first trading day of July.
On Tuesday, though, it rebounded after the remarks from People's Bank of China Governor Yi Gang and continued to ride the updraft on Wednesday, putting the yuan on track for its first two-day winning streak since the middle of June and best day since late March.
At 0800 GMT, it was trading at 6.6126 yuan per dollar, about 0.5 percent stronger than the late night close on Tuesday.
"Thankfully for regional risk, the PBOC engaged the yuan airbrake yesterday afternoon and at least for the time being, with the help of Chinese state-owned banks who were seen selling dollars to prop up the Chinese currency, is restoring a sense of calm in regional markets," OANDA wrote in a note.
A trader at a Chinese bank said the PBOC's signal was clear, but the market would closely watch developments ahead of Friday.
"In the short term, the yuan will continue consolidating at the current level, while sharp, one-way falling might have come to an end," the trader said.
Despite the market tumult earlier this week, China appears broadly comfortable with a weakening yuan and would intervene only to prevent any destabilising declines or to restore market confidence, policy insiders told Reuters.
Authorities are also confident they won't have to make heavy use of the official foreign exchange reserves to defend the yuan as they did during 2015 when stocks and the currency went into a tailspin.
However, key Chinese equity indexes were not so re-assured, starting the day flip-flopping around Tuesday's closing prices before sliding into negative territory and staying there.
The benchmark CSI300 Index ended the day down 1.3 percent, and the Shanghai Composite Index was off 0.94 percent.
A person with knowledge of the plan told Reuters that Chinese tariffs on $34 billion of U.S. goods would take effect from midnight Beijing time on July 6 in response to the U.S. move.
In flagging its first move, Washington said it would implement its tariffs on July 6, but the 12-hour time difference technically puts Beijing ahead in imposing its reciprocal measures.
Also muddying trade relations between the world's two largest economies was a Chinese court ruling that temporarily barred U.S. chipmaker Micron Technology Inc from selling some of its main products in the world's biggest memory chip market.
Separately, the central bank of Singapore, whose economy is heavily reliant on global trade, warned risks to the global growth outlook have significantly increased due to the intensifying trade row between Washington and Beijing.
"Investors are quite pessimistic at this point, and the downward correction for traditional blue-chips, represented by the heavyweight 'nifty 50' firms, is not over yet," said Wang Mingli, an analyst with Guoyuan Securities.
An index tracking the 50 most representative blue-chips in Shanghai, dubbed China’s "nifty 50", slid around 1 percent to a near 14-month low.
However, Wang saw investment value in some growth and tech firms, saying the authorities were attaching more importance to the country's tech sector amid a bitter trade spat with the United States.
In Hong Kong, the Hang Seng Index closed down 1 percent, while an index that tracks mainland companies had fallen about 1.5 percent.
"Caution will prevail" ahead of July 6, said Steven Leung, an analyst with UOB Kay Hian. (Additional reporting by Liu Luoyan Editing by Sam Holmes)