China's yuan at new prices as trade war threatens market instability

SHANGHAI (Reuters) – China's yuan slumped to a new low on record, as a bitter Sino-U.S. Trade row is the world's second-biggest economy as well as a modicum of calm.

Chinese stocks were also set for their biggest monthly slide since January 2016, highlighting the anxiety among investors in Washington and the United States showed no signs of backing down from their tariff spat.

As of 0230 GMT, the CSI300 benchmark index was up 1.15 percent, while the Shanghai Composite Index rose around 0.8 percent, though they were down 8.8 percent and 9.1 percent for the month.

The yuan has shed about 3.4 percent of its value against the dollar in June, it's biggest fall since the market exchange rate was unified in 1994. On Friday at 0230 GMT, it was trading at 6.6368 per dollar.

U.S. President Donald Trump has shaken the world trade by seeking to renegotiate the terms of some of the United States' trading relationships, in particular with China.

The U.S. is targeting $ 34 trillion of Chinese goods for tariffs to take effect on July 6, and has spawned tens of billions of dollars more for similar duties.

Investors worry about a long selloff in stocks and the yuan could spark a bout of capital outflows economy and complicating policy making the United States.

Chinese 10-year treasury futures, the most traded contract, 0.24 percent.

"The central bank is expected to step up efforts to calm investors and reduce the rate of depreciation, which is possible to reintroduce counter-cyclical factor (CCF)," Gao Qi , FX strategist at Scotiabank in Singapore, wrote in a note on Friday.

He said there would be "strong resistance" at 6.70 yuan per dollar.

A trader at a regional bank in Shanghai who has been reckoned with the "filtering" of the midpoint fixing, which is set by the central bank each morning, in an apparent bid to keep the yuan from falling too Sharply.

"It is too early to say whether the counter-cyclical factor has been revived. If market sentiment could recover by itself, there is no need to use the factor. Market still needs some time to digest, "said the trader.

In May 2017, the People's Bank of China added a secret "counter-cyclical factor" to its formula for calculating the midpoint, which helped put a floor under a falling yuan. It effectively removed the x-factor at the start of this year as the rebounded yuan.

The trader said this dollar was strong this week and could persist until July 6, when U.S. tariffs on Chinese goods are set to take effect.