October 9, 2018 / 7:41 AM / 9 months ago

China stocks waver as economic concerns weigh on policy boost

* Shanghai Composite +0.2 pct, CSI300 -0.1 pct

* Yuan gains ground after sharp fall Monday

* CNH gains as overnight borrowing cost spikes

By Andrew Galbraith

SHANGHAI, Oct 9 (Reuters) - Shares in China ended Tuesday mixed after wavering through the day on nagging concerns over growth prospects despite Beijing’s steps to support the economy and contain the effects of an escalating trade war with the United States.

The Shanghai Composite index ended 0.2 percent higher, having repeatedly dipped into the red. The blue-chip CSI300 index, in contrast, was unable to hold onto gains and ended 0.1 percent lower.

The CSI300 financial sector sub-index ended down 0.2 percent, the consumer staples sector gained 1 percent, the real estate index lost 0.8 percent and the healthcare sub-index ended 0.1 percent lower.

“The stock market has tended to fall when monetary conditions are loosened ... as investors focus on the near-term state of the economy rather than the possible medium-term effects of easing. With this in mind, we think that China’s stock markets will slide again later this year,” analysts at Capital Economics said in a note.

The smaller Shenzhen index ended down 0.1 percent and the start-up board ChiNext Composite index finished 0.6 percent weaker.

The markets moves came after a rout on Monday that saw the CSI300 plunge 4.3 percent, its biggest loss since February 2016.

Analysts had attributed Monday’s losses to Chinese investors playing catch-up after a week-long holiday, during which a sharp sell off in global bond markets had dragged down equity markets.

The Shanghai Composite index finished 3.7 percent lower on Monday, its worst day since June 19.

The blue chip index is second only to the Greek benchmark as the world’s worst-performing major index this year, having fallen 18.4 percent. The Shanghai Composite is down 17.7 percent this year.

The weakness in Chinese markets comes despite steps to support the economy amid concerns over growth and the impact of the tariff war with the United Staqtes. On Sunday, China’s central bank cut banks’ reserve requirement ratio (RRR) by 100 basis points to free up more cash.

“In our view, the performance of external markets may hamper the near-term sentiment uplift of the RRR cut, so the effect may not be obvious,” Gao Ting, Head of China Strategy at UBS Securities, said in a note.

On Monday the State Council, China’s cabinet, said it will increase export tax rebates from Nov. 1 and will speed up export tax rebate payments.

Citing trade tensions, the International Monetary Fund cut its global economic growth forecasts for 2018 and 2019 on Tuesday, and predicted that China could face particularly severe consequences in the event of an all-out U.S.-China trade war.

The yuan strengthened on Tuesday after falling sharply on Monday to its lowest official close in seven weeks.

It was trading at 6.9224 per dollar at 0723 GMT, 0.09 percent firmer than Monday’s close of 6.9285, despite the central bank setting a weaker midpoint for the yuan’s daily trading band.

The offshore yuan was trading at 6.9231 per dollar at 0725 GMT Tuesday after falling sharply on Monday.

Traders in Hong Kong said state-owned banks were seen as moving to prop up the currency, swapping U.S. dollars for offshore yuan and driving up overnight borrowing costs 326 basis point to 5 percent, its highest level since late May.

Reporting by Andrew Galbraith; additional reporting by Noah Sin in HONG KONG; Editing by Simon Cameron-Moore

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