July 6, 2018 / 3:25 AM / 4 months ago

UPDATE 4-Chinese stocks, yuan down, U.S. trade tariffs kick in

* China blue-chip CSI300 index down 0.1 pct

* Shanghai Composite index flirts with 2-year lows

* Yuan lower as tariffs kick in (Updates prices)

SHANGHAI, July 6 (Reuters) - Chinese stocks were down by midday on Friday and the yuan was also off against the dollar as U.S. tariffs on Chinese goods kicked in, escalating the trade row between the two superpowers and clouding the global economic outlook.

The United States imposed tariffs on $34 billion of Chinese imports at 0401 GMT. Beijing has promised to retaliate in kind.

As of the midday trading break that started a half hour before the tariffs took effect, the benchmark CSI300 Index was down 0.1 percent, after earlier falling as much as 1.4 percent. The Shanghai Composite Index fell about 0.3 percent after flirting with two-year lows.

The fall put Shanghai stocks on track for their seventh week of declines in a row.

“The chances are slim for China and the U.S. to reach an agreement on trade issues, and trade war worries will be a long-term uncertainty for at least the next two years,” said Yan Weixiao, an analyst with Founder Securities, adding that things could be “dangerous” for Chinese stocks.

Yan said the psychologically key level of 2,638 points for the SSEC, which was hit in March 2016, will probably be broken.

At 0413 GMT, the yuan was at 6.6570 per dollar and trading in a tight range after ending the late session on Thursday at 6.6371.

“There shouldn’t be huge volatility in the market because it’s all expected. Investors know what’s going to happen and it has already been priced in,” said Li Liuyang, senior foreign exchange analyst at China Merchants Bank in Shanghai, referring to the yuan market.

“The market will pay attention to any follow up, whether Trump escalates further, or anything unexpected happens.”

Gao Qi, FX strategist at Scotiabank, said in a note on Friday he expected the Chinese authorities to step in to calm the market and prevent the yuan from sharply depreciating if need be.

“We see a strong resistance of 6.70 for now and the 6.90 level seems China’s bottom line for the yuan exchange rate. The yuan will certainly face intensifying depreciation pressure again going forward if China fails to de-escalate trade tensions with the U.S.,” he wrote.

The United States is set to impose tariffs on $34 billion of Chinese imports from 0401 GMT on Friday and has warned it may ultimately target over $500 billion worth of goods, or roughly the total amount the United States imported from China last year.

Beijing has vowed to immediately respond with an equal amount of tariffs of its own against U.S. autos, agricultural and other products, though it is unclear how swiftly the actions could escalate into an all-out trade war. (Reporting by Winni Zhou, Liu Luoyan and John Ruwitch; Additional reporting by Andrew Galbraith; Editing by Sam Holmes)

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