* Onshore yuan falls, Shanghai shares rise 0.8%
* China’s August exports unexpectedly shrink as US shipments slump
* China cuts banks’ reserve ratios, frees up $126 bln for loans as economy slows
By Luoyan Liu and Noah Sin
SHANGHAI/HONG KONG, Sept 9 (Reuters) - Chinese yuan currency lost ground against the U.S. dollar on Monday, while stocks climbed, after Beijing rolled out fresh stimulus to underpin the economy against stiff trade tariffs and sluggish domestic demand.
China’s central bank said on Friday it was cutting the amount of cash that banks must hold as reserves for the third time this year, releasing 900 billion yuan ($126.19 billion) in liquidity to shore up the flagging economy.
The RRR cut came before data over the weekend showed the country’s exports unexpectedly fell in August as shipments to the United States slowed sharply, pointing to further weakness in the world’s second-largest economy and underlining a pressing need for more stimulus as the Sino-U.S. trade war escalates.
The yuan softened after Beijing’s latest stimulus package.
The onshore yuan slipped 0.25% to 7.1331 per dollar as of 0701 GMT, while the offshore yuan shed 0.32% to 7.1305 per dollar.
Traders said the People’s Bank of China (PBOC) appears to have used the daily fixing to brake the yuan’ s decline once again. It set the midpoint - at which the spot rate can trade 2% on either side - at 7.0851 per dollar, stronger than Reuters’ estimate of 7.094.
The yuan had its first weekly gain in three weeks on Friday, buoyed by hopes Beijing and Washington would find a way to de-escalate tensions after trade negotiators from both sides agreed to meet in Washington in October.
“They (PBOC) won’t let the yuan fall too much, because they know the U.S. will keep an eye on the exchange rate. It is likely to be steady,” a trader with a foreign bank in Shanghai said.
“All in all, we reckon that the PBoC tends to anchor the RMB trading within 7.1-7.2 range and will not allow much room for further RMB depreciation before the China-US trade talks taking place in early October,” Ken Cheung, senior Asian FX strategist at Mizuho Bank, wrote in a report.
In the A-share market, gains were extended after a robust previous week, with the blue-chip CSI300 on Monday ending at a near five-month high and posting a seventh session of gains.
At the close, the blue-chip CSI300 index was up 0.6% at 3,972.95, while the Shanghai Composite Index added 0.8% to 3,024.74 points.
Most sectors gained on the day, led by tech firms, as Beijing seeks tech self-sufficiency amid sanctions by the U.S. on Chinese tech leaders, including Huawei.
The indexes tracking major IT and telecommunications firms on the mainland closed up 3.9% and 4.9%, respectively.
“The improved liquidity (as a result of the RRR cut) will tilt toward the real economy, in particular small and micro tech enterprises whose real borrowing costs would be lowered, and reinforce market participants’ preference for the tech industry,” Guoyuan Securities said in note.
Beijing is widely expected to announce more support measures to avert the risk of a sharper economic slowdown, including modest cuts in various lending rates next week and more RRR cuts, possibly in the fourth quarter.
China’s central bank surprised markets by not rolling over medium-term loans on Monday, signalling Beijing is keen to avoid flooding the financial system with liquidity even as authorities take steps to boost bank lending to prop-up a slowing economy.
But while the PBOC said it didn’t conduct MLF operations, market participants and analysts still expect the central bank will cut the MLF rate in coming weeks to support economic growth. Such a reduction could lead to a lower loan prime rate (LPR), the nation’s new benchmark lending rate.
And, despite Sino-U.S. trade tensions easing somewhat as the two countries agreed to resume talks in October, doubts remain on whether any material progress would be made this time.
White House economic adviser Larry Kudlow said on Friday the United States wants “near term” results from trade talks in September and October but cautioned that the trade conflict could take years to resolve. ($1 = 7.1323 Chinese yuan renminbi)
Additional reporting by Samuel Shen Editing by Shri Navaratnam