May 14, 2019 / 8:10 AM / 2 months ago

CORRECTED-WRAPUP 3-China stocks, yuan weaken on trade war escalation

(Corrects change in CSI300 financial sector sub-index in paragraph 10 to down, not up)

* Shanghai shares down 0.7%, blue chips 0.6% lower

* Volume remains high; foreign investors retreat

* China hikes tariffs on U.S. goods in retaliation

* Trump says to meet Xi, hold taxing all Chinese goods

By Noah Sin and Luoyan Liu

HONG KONG/SHANGHAI, May 14 (Reuters) - Chinese stocks closed weaker on Tuesday due to the escalating Sino-U.S. trade war, though prices recovered from early lows on suspected state-backed buying and comments from U.S. President Donald Trump that raised hopes of a deal between the two sides. The Shanghai Composite ended 0.7% lower at 2,883.61 points, while the blue-chip CSI300 eased 0.6 %. Both indexes rebounded after opening down 1%, hovering in positive territory at times.

The recovery was aided by “national team” purchases, according to some analysts, referring to state-backed institutions.

Zhang Qi, analyst at Haitong Securities in Shanghai, said there was “buying of key stocks” by state-backed players, noting relatively high volume in the morning.

About 20.8 billion shares changed hands in Shanghai on Tuesday, not far off the 21.2 billion transacted during Monday’s sell-off.

“There could have been state buying in early morning trade when there panic selling was evident,” said a second Shanghai-based analyst, who did not want to be named.

Earlier, Trump said he would meet with Chinese President Xi Jinping at a G20 summit in late in June, reigniting hopes for an agreement.

His comments came after China announced on Monday higher tariffs on $60 billion of U.S. goods, effective June 1, in retaliation for Washington’s decision last week to hike its own levies on $200 billion in Chinese imports. “The implementation of the new tariffs are (almost) three weeks away from now, and the talks have not collapsed,” Steven Leung, sales director at UOB Kay Hian in Hong Kong, said of the recovery in A-shares. “People are also speculating whether China will roll out more policy support measures.”

CSI300’s sub-index for the financial sector was down 0.6%, the consumer staples sector was down 0.8%, healthcare shares slid almost 1% and real estate stocks lost 0.8%.

The smaller Shenzhen market lost 0.6%, while the start-up ChiNext board fell close to 0.6% despite MSCI confirming it would include part of the board in its benchmark emerging market index..

The Hong Kong stock market, returning from a holiday, was down 1.4% as of 0758 GMT in its first reaction to the tariff retaliation, as the market was closed on Monday for a holiday.

Foreign investors sold a net 10.6 billion yuan ($1.54 billion) worth of A-shares.

In the currency market, the offshore yuan climbed on Trump’s bullish remarks on prospects for a trade deal.

The onshore yuan weakened 0.1% to its lowest level since December 27, 2018, trading at 6.8874 per dollar, after the Chinese foreign ministry said it hopes the United States does not underestimate its determination to protect its interest.

“The market desperately wants to believe in a deal and takes any headline to ignite renewed optimism,” said a Hong Kong-based FX sales banker at an international lender.

Prior to the onshore market open, the People’s Bank of China set its midpoint at its weakest in four months, but traders said it was still higher than the market had expected after the currency lost all of its year-to-date gains on Monday. ($1 = 6.8731 Chinese yuan renminbi) (Editing by Jacqueline Wong and Simon Cameron-Moore)

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