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Chinese stocks slide to more than two-year low

China’s bear market slump deepened, with the Shanghai gauge closing at its lowest since March 2016, and the yuan resumed its decline as traders braced for US tariffs.

The Shanghai Composite Index dropped 0.9%, extending its loss in the past four weeks to 12%. Hong Kong’s Hang Seng Index was down 0.4% as of 3:27 pm local time, while the offshore yuan fell as much as 0.3% after a two-day advance.

Stock indexes in Shanghai and Hong Kong have fallen further than any other tracked by Bloomberg worldwide in the past month as investors fear China’s slowing economy will struggle to cope with the cost of a protracted trade war.

A slumping yuan has damped the attraction of Chinese assets even as policy makers vowed not to use the currency as a weapon against the US.

“The trade war is a constant overhang and I don’t see it being removed any time soon,” said Zhang Gang, Central China Securities strategist in Shanghai. “The yuan is under pressure again today, which is bad for sentiment.”

The first wave of US tariffs on $34bn of Chinese exports will take effect on July 6, according to a statement from the US Trade Representative, which didn’t specify a time.

China’s response of additional tariffs on US goods will become effective “immediately” thereafter. If the US tariffs come in at midnight on Friday US time, that’s midday Friday in Beijing.

PetroChina was the biggest drag on the Shanghai Composite Index, falling 0.8%. Bank of Beijing led declines by smaller banks. 

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