By Andrew Galbraith
SHANGHAI (Reuters) - China's stocks clawed back earlier losses on Friday but lengthened a string of weekly declines as Washington's tariffs on Chinese goods took effect, escalating the trade row between the world's two largest economies.
The yuan weakened against the dollar on the day.
The United States imposed tariffs on $34 billion of Chinese imports at 0401 GMT Friday. Beijing said it had no choice but to respond in kind, but was yet to outline the full extent of any retaliatory measures.
The benchmark CSI300 Index closed up 0.7 percent, but was still down 4.2 percent for the week, its fifth consecutive weekly loss.
The Shanghai Composite Index ended up 0.5 percent after flirting with two-year lows in the morning session. It ended the week 3.5 percent lower, its seventh straight week of losses.
Market participants said some investors were buying beaten-down stocks following this week's selloff, but said the market continued to face significant uncertainties.
"Sentiment is holding up well in Asia today, reflecting that tariffs on $34 billion of goods is pretty much priced in," said Frances Cheung, head of Asia macro strategy at Westpac in Singapore. "Now to see if there is anything unexpected ... over the weekend."
A Shanghai-based hedge fund manager, who declined to be identified, said the jump looked like a "self-initiated market rebound."
The fund manager, who tracks big money flows for suspected state intervention, said she didn't see any evidence of buying from state investors to support the market.
"State intervention is bad for the market, as it only prolongs, rather than stems the market fall, if we're not yet at the bottom," she said.
Analysts said the outlook for shares remained shaky.
"The chances are slim for China and the U.S. to reach an agreement on trade issues, and trade war worries will be a long-term uncertainty for at least the next two years," said Yan Weixiao, an analyst with Founder Securities, adding that things could be "dangerous" for Chinese stocks.
Yan said the psychologically key level of 2,638 points for the SSEC, which was hit in March 2016, will probably be broken.
As stocks turned around, Chinese treasury futures fell. Chinese 10-year treasury futures for September delivery, the most-traded contract, were 0.26 percent lower at 95.590.
China's yuan was slightly weaker, at 6.6515 to the dollar.
"The market has already digested (the news of tariff implementation)," said Ken Cheung, senior Asian FX analyst at Mizuho Bank in Hong Kong. "Unless there is an escalation, the yuan is unlikely to have a sizable decline."
Gao Qi, FX strategist at Scotiabank, said in a note on Friday he expected the Chinese authorities to step in to calm the market and prevent the yuan from sharply depreciating if need be.
"We see a strong resistance of 6.70 for now and the 6.90 level seems China's bottom line for the yuan exchange rate. The yuan will certainly face intensifying depreciation pressure again going forward if China fails to de-escalate trade tensions with the U.S.," he wrote.
(Reporting by Winni Zhou, Liu Luoyan and John Ruwitch; Additional reporting by Andrew Galbraith and Samuel Shen; Editing by Sam Holmes)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)