China's yuan, stocks barrel downward on heightened trade jitters

SHANGHAI (Reuters) - China's yuan dipped past 6.7 per dollar on Tuesday for the first time in almost a year, and stocks stumbled anew as Beijing and Washington hurtled toward an end-of-week deadline that would trigger tariffs on goods going both ways.

Chinese currency and stock markets have been jittery ahead of July 6, when U.S. tariffs on $34 billion worth of Chinese goods kick in. Beijing has said it would retaliate with tariffs on U.S. products.

In the face of the sell-off on Tuesday, China's state-controlled media kicked into gear, calling the fall in stocks an "irrational overreaction" and urging investors not to panic over the growing trade frictions.

The yuan fell to 6.7204 per dollar, its weakest since Aug. 7, 2017 and the first time it dropped below 6.7 since Aug. 9, 2017, before recovering to 6.6923 per dollar at 0240 GMT. The currency has lost more than 4 percent of its value against the dollar since June 14.

The central bank earlier set the stage for the drop by putting the midpoint roughly in line with market expectations, at 6.6497 yuan per dollar, its weakest fixing in about 10 months.

"It's a crucial day for the yuan today," said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong.

"I think the central bank is likely to take out some measures if the onshore yuan closes at weaker than 6.7 per dollar as of domestic close today."

In equities, the blue chip CSI300 Index was off 0.75 percent in early trading, while the Shanghai Composite Index was down nearly a half a percent. Both ended down by more than 2 percent on Monday, with the CSI300 off by more than 3 percent at one point.

Hong Kong's Hang Seng Index was hammered early on Tuesday after a one-day hiatus on Monday to mark the day that the former British colony was returned to China. It was off by more than 3 percent in early trade, but had clawed back some ground to trade down 2.66 percent by 0217 GMT.

"Intensifying trade frictions between China and the United States are a test that the Chinese economy inevitably had to experience during its rise," the Economic Daily said.

"We have long anticipated and prepared for this...The impact on the Chinese economy is within a controllable range."

The Securities Daily newspaper, meanwhile, called the slump in the mainland stocks an overreaction, saying that investors should have confidence in China's domestic market and that the current macroeconomic situation was stable.

(Reporting by Winni Zhou and John Ruwitch; Editing by Sam Holmes)