China stocks tumble despite central bank's move to support economy

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Yuan traders will be watching the People's Bank of China's response to the Fed's action and statement wording.

The benchmark Shanghai Composite Index slid 3.72%, or 104.84 points, to 2,716.51. "And today's fall is not surprising after weak performance in external markets during the holiday".

China's foreign exchange reserves dropped to a 14-month low at the end of September amid prolonged trade tensions with the USA and a weakening yuan.

The losses in China dragged down MSCI's broadest index of Asia-Pacific shares outside Japan, which was 0.9 percent lower.

On Friday, Chinese technology stocks listed in Hong Kong slumped on a Bloomberg report that the systems of multiple US companies had been compromised by malicious computer chips inserted by Chinese spies. The losses in NY seeped into Asia, where Shanghai sank 3.7 percent, while Hong Kong lost 1.4 percent in the afternoon with property firms hit by expectations the city's banks will lift mortgage rates again as they track a likely Fed hike.

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Gold is down more than 12 percent from an April peak largely due to a strong dollar, which reflects a vibrant US economy, rising USA rates and fears of a global trade war.

Losses on major indexes in mainland China were as high as 4.8% in a major market rout, with the China A50, which includes major companies from both the Shenzhen and Shanghai indexes, as the biggest loser.

Some of the liquidity unleashed will be used to pay back the 450 billion yuan (USD 65 billion) of the medium-term lending facility that will mature on October 15, state-run Xinhua news agency reported. "Liquidity is not the issue".

"That means to keep a stable exchange rate remains one of the priorities of China's monetary policy", said Ming Ming, an analyst with CITIC Securities.

The 30-year Treasury bond reached a four-year high of 3.424 percent, and was at 3.4054 percent at the USA close on Friday.

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It comes as the U.S. and China have imposed tariffs on one another's goods in a row that is hitting companies and risks hurting the global economy.

China's commerce ministry has approved six cities for a special trade program in which exporters are exempted from a value-added tax of 16 percent, according to recent local media reports. "The narrowing interest rate differentials between China and the United States will exert more downward pressure on the RMB", wrote Nathan Chow, strategist at DBS Group Research. The rest of Asian markets fell on Monday, extending last week's sell-off.

Following the PBOC's move, the offshore yuan was 0.2 percent weaker against the dollar in early trade on Monday. The onshore yuan has weakened about 5.5 per cent against the dollar this year.

The yuan has been on a downward trend for months, weakening around 9% since the start of April, according to data from the central bank.

Coming on the final day of the National Day holiday, the South China Morning Post says "the central bank's announcement may also serve as a shot in the arm for the China's stock market when trading resumes on Monday morning".

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