China's yuan down as US fires fresh trade salvo; stocks steady

SHANGHAI (Reuters) - China's yuan currency pulled back against the dollar in early trading on Tuesday after U.S. President Donald Trump said Washington will impose tariffs on an extra $200 billion worth of Chinese imports.

All the same, Chinese stocks, which have been battered this year, pushed higher as some investors said the markets may have priced in the sharp escalation of the trade dispute between the two economic giants.

Trump on Monday imposed 10 percent tariffs on about $200 billion worth of Chinese imports, and threatened to levy duties on about $267 billion of additional Chinese goods if Beijing retaliates.

Chinese Vice Premier Liu He is set to convene a meeting in Beijing on Tuesday morning to discuss the government's response to the U.S. decision, Bloomberg News reported, citing a person briefed on the matter

The bluechip CSI300 index rose 0.6 percent to 3,223.44 points at 2:11 GMT, while the Shanghai Composite Index gained 0.4 percent to 2,661.91 points.

But Hong Kong's Hang Seng index was down 0.5 percent, to 26,797.66 points.

"The fresh U.S. measures are fully within expectations," said Wen Feng, investment manager at hedge fund house Shanghai V-Invest Co Ltd.

"China has suffered worse hardships in the past, and I believe some Chinese companies will emerge out of trade war much stronger."

Still, he suggested investors avoid sectors most vulnerable to trade disputes, such as electronics and machinery, as market sentiment will likely remain subdued for some time.

Indeed, with around a 20 percent loss so far in 2018, Shanghai's stock market has joined the crisis-hit trio of Turkey, Argentina and Venezuela among the world's four worst performers. Besides the headline drop in share values, China's currency has fallen sharply and share transaction volumes have shrunk.

The yuan dipped slightly against the dollar.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8554 per dollar, 45 pips weaker than the previous fix 6.8509.

The spot market opened at 6.8760 per dollar and was changing hands at 6.8742 as of 0218 GMT, 189 pips weaker than the previous late session close.

Traders said the renewed Sino-U.S. trade tension piled pressure on the yuan, but market participants refrained from aggressively testing lows for fear the authorities may quickly step in.

Investors were "spontaneously" liquidating their short yuan positions, which lifted the offshore yuan from its intraday low, said a trader at a Chinese bank.

"Market will watch out for China's possible reaction to the new round of trade tariffs. China is likely to reject the invitation from the U.S. Treasury for the new round of trade talk," OCBC Bank said in a note on Tuesday.

(Reporting by Samuel Shen and Winni Zhou and John Ruwitch; Editing by Shri Navaratnam)