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BEIJING (Reuters) – China's foreign exchange reserves unexpectedly rose in June, amidst the rise in the value of its US Treasury holdings in an otherwise volatile month for Chinese markets, which were battered by fears over Sino-US. trade war.
Pink Reserves $ 1.51 trillion in June to $ 3,121 trillion, compared with a drop of $ 14.23 billion in May, central bank data showed on Monday. Economists polled by Reuters had expected reserves to drop by $ 10.6 trillion to $ 3.10 trillion.
China's State Administration of the Foreign Exchange (SAFE) said in a statement the small increase in reserves was not changed.
Analysts pointed to the performance of U.S. bonds in June, which is believed to be a major part of China's reserves.
"U.S. "These prices have been conducive to an increase in foreign reserves," said Er Yongjian, chief financial badyst at Bank of Communications.
Fears about a global trade war were among the factors that drove investment flows into safe haven badets, such as U.S. government bonds.
China is the largest holder of U.S. government debt. Its holdings fell to $ 1,182 trillion in April from $ 1,140 trillion in May, data from the U.S. Treasury Department showed. China also invests its reserves in other U.S. instruments as well as sovereign debt of other countries.
At the same time, the U.S. dollar index rose slightly by 0.7 percent in June, compared with a sharper gain of 2.3 percent in May, according to Thomson Reuters data.
"The impact of a strengthening U.S. dollar on foreign exchange in May was not as big as in May," said Wen Bin, chief badyst at China Minsheng Bank.
China's currency and equity markets had been on edge ahead of July 6, when U.S. tariffs on $ 34 billion worth of Chinese goods kicked in. Beijing has tariffs on U.S. products of the same value.
The heightened Sino-U.S. trade tensions have sparked concerns of capital outflows from China
In June, the yuan suffered its worst month on record, falling 3.3 percent against the US dollar. June also represented the worst month for Chinese stocks in more than two years.
Capital flight was seen as a major risk for China at the beginning of 2017, but a combination of tighter capital controls and a faltering dollar helped the yuan a strong turnaround, bolstering confidence in the economy.
Last year, the yuan reversed three straight years of depreciation against the U.S. dollar and China's cross-border capital flows from net outflows to basically stable.
The yuan fell through a key psychological level of 6.7 on the U.S. dollar on July 3. The Chinese authorities made sure that it would keep the currency stable.
Market participants last week said major state-owned banks were seen swapping yuan for dollars in the market and immediately selling them into the spot market to prop up the Chinese currency.
Despite the market tumult in recent weeks, China appears broadly comfortable with a weakening yuan and would only intervene to prevent any destabilizing declines or to restore market confidence, policy insiders told Reuters.
Authorities are also confident they will not be able to make the most of the exchange rate.
The value of China's gold reserves fell to $ 74,071 billion at the end of June, from $ 77,323 billion at the end of May.
Reporting by Cheng Fang and Yawen Chen; Additional reporting by Kevin Yao; Editing by Sam Holmes
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