Linda Kim TOKYO, August 6 -- Global stocks extended already substantial losses on Tuesday (Aug 6), after Washington designated Beijing a currency manipulator in a rapid escalation of the United States-China trade war, but losses were pared after China set its daily yuan fixing stronger than expected, tempering fears of a currency war. Safe-haven assets, including bonds and some currencies such as the yen and Swiss franc, benefited as investors scurried to avoid risk. US Treasury Secretary Steven Mnuchin said on Monday that the government had determined China is manipulating its currency, and that Washington would engage the International Monetary Fund to eliminate unfair competition from Beijing. “Officially labelling China a currency manipulator gives the United States a legitimate reason to take even more steps,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “The markets are now scrambling to factor in the possibility of the United States imposing not only an additional 10 per cent of tariffs on Chinese imports, but the figure being raised to 25 per cent. This is likely to be a protracted trade war without a quick resolution.” US President Donald Trump vowed last week to impose a 10 per cent tariff on US$300 billion (S$414 billion) of Chinese imports from Sept 1, adding that it can be raised beyond 25 per cent. Some economists reckon the global economy could slip into recession in the coming months if the tariff is increased to 25 per cent. The Trump administration’s dramatic move against China hastened the risk aversion seen in global markets this week. On Monday, Beijing let the yuan breach 7-per-dollar on Monday for the first time since late 2008 in response to the latest US tariffs, which are expected to further aggravate trade tensions between the world’s two largest economies. On Tuesday, the offshore yuan fell to as low as 7.1397 per dollar in early Asian trade on Tuesday before pulling back to 7.0785 after China's central bank set its daily currency fixing back above the 7 level to the US dollar. The slightly firmer-than-expected morning benchmark rate of 6.9683 was still the weakest since May 2008. The People's Bank of China (PBOC) also said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short-selling of the currency. US stock-index futures rebounded, erasing earlier declines. S&P 500 Index futures contracts expiring in September rose as much as 0.7 per cent as of 1.06pm in Tokyo as the yuan steadied, after falling as much as 1.9 per cent. Dow Jones Industrial Average contracts ascended 0.6 per cent while those on the Nasdaq 100 added 0.5 per cent. Asia stock markets markets plunged on opening before paring their losses after China's latest yuan fixing. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.85 per cent after brushing its lowest since January. Tokyo opened nearly 3 per cent lower before recovering to end the morning 2 per cent down. Hong Kong fell 2.4 per cent while Shanghai and Sydney shed 2.6 per cent. Manila and Wellington were also down around 2 per cent. In Singapore, the Straits Times Index opened down 1.5 per cent before recovering some ground to trade 19.55 points or 0.6 per cent lower at 3,174.96 by the midday break.
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