Government lets yuan fall faster, share trading suspended as prices tumble

China's stock markets were suspended for the rest of the day less than half an hour after opening as a new circuit-breaking mechanism was tripped for the second time this week.

China's President Xi Jinping speaks during a Forum on China-Africa Cooperation in Sandton, Johannesburg, December 4, 2015. REUTERS/Siphiwe Sibeko

China accelerated the depreciation of the yuan on Thursday, sending regional currencies and stock markets tumbling as investors feared the Asian giant could trigger competitive currency devaluations from trading partners.

The People's Bank of China (PBOC) again surprised markets by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), at 6.5646 per dollar, the lowest since March 2011.

That was 0.5 percent weaker than the day before and the biggest daily drop since last August, when an abrupt near 2 percent devaluation of the currency also roiled markets.

Regional currencies promptly went into a tailspin. The Australian dollar, often used by foreign exchange dealers as a liquid proxy for the yuan, fell half a U.S. cent in a blink.

The PBOC's China Foreign Exchange Trade System (CFETS) repeated on Thursday that there was no basis for the yuan's continuous depreciation and that it was stable against a basket of currencies in 2015.

But the central bank's fixings have helped drive the yuan down not just against the dollar this week, but also other major currencies, including a 3.5 percent fall against the yen and 0.8 percent against the euro.

That raised concerns that China might be aiming for a competitive devaluation to help its struggling exporters.

"That's the fear of the market," said Sim Moh Siong, FX strategist for Bank of Singapore, adding that it was a zero sum game as other currencies weakened in response, and the end result would be greater volatility.

Others in the market were unsure what policy Beijing was pursuing.

"Frankly speaking, we are still not quite sure where the PBOC boundary is at the current stage. The fear of the unknown has become the largest risk for RMB in the near term, despite China’s sizable current account surplus," said Singapore-based Oversea-Chinese Banking Corporation (OCBC).

OCBC noted that against a basket of currencies, the RMB index was still only fractionally down for 2016, despite this week's fixes against the dollar.

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