China stocks slip, yuan struggles as Washington, Beijing prepare trade salvos

By John Ruwitch and Samuel Shen

SHANGHAI (Reuters) - Chinese stocks fell on Thursday and the yuan wavered against the dollar a day before China and the United States were set to hit one another with punitive tariffs that risked triggering a full-scale trade war.

Markets have been on edge ahead of Friday, when U.S. tariffs on $34 billion worth of Chinese products - and retaliatory Chinese tariffs on U.S. goods of the same value - are expected to kick in.

The declines in stocks come the same day the central bank's targeted cut of reserve requirements for banks took effect, which was expected to release additional liquidity into the financial system.

The blue chip CSI300 Index <.CSI300> closed down 0.6 percent, and the Shanghai Composite Index <.SSEC> fell 0.9 percent. Hong Kong's Hang Seng Index <.HSI> ended down 0.2 percent.

"The bottom for A-shares is nowhere in sight yet," said Samuel Chien, partner of Shanghai BoomTrend Investment Management Co. The hedge fund house currently has no long positions in China A-shares, or yuan-denominated mainland stocks.

"Whether you look at fundamental factors, or market psychology, there's nothing bright - a Sino-U.S. trade war will have a seriously negative impact on China's economy. There could be a market rebound, but I don't want to make that sort of money, it's too dangerous."

As A-shares fell, Chinese treasury futures advanced before giving up ground later in the day. Chinese 10-year treasury futures for September delivery , the most-traded contract, rose as much as 0.28 percent in early afternoon trade, before settling up 0.06 percent at 95.840.

The yuan made late gains after earlier declines, but was mostly flat on Thursday afternoon. The currency ended the onshore trading session slightly weaker, at 6.6372 per dollar after ending the late night session at 6.6330.

The yuan's midpoint was set within market expectations, according to traders, but volume shrank on Thursday morning as investors went into a holding pattern on the eve of the tariff implementation on Friday.

Daily trading volume dipped to $7.951 billion as of 0324 GMT, about half of normal volume.

In June, the yuan suffered its worst month on record, falling 3.3 percent against the dollar.

"The yuan is likely to continue range-bound trading before Friday," said a trader at a Chinese bank.

The reserve requirement cut, which was announced on June 24, releases about 700 billion yuan ($105.5 billion) in liquidity, the People's Bank of China said on Thursday.

(Reporting by John Ruwitch and Samuel Shen; Additional reporting by Andrew Galbraith; Editing by Sam Holmes & Shri Navaratnam)

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