* SSEC -1.3 pct, CSI300 -1.3 pct
* Trade war rhetoric heats up in China state media editorial
* Yuan weakens despite PBOC moves to stabilise
* Hang Seng index trims gains, up 0.5 pct
By Winni Zhou and Andrew Galbraith
SHANGHAI, Aug 6 (Reuters) - China’s stocks stumbled on Monday as Beijing and Washington engaged in a fresh bout of tariff threats and an unusually personal attack by state media on the U.S. president further intensified the trade war between the two major powers.
The Shanghai Composite index and the blue-chip CSI300 index both closed 1.3 percent lower on Monday, having erased earlier gains.
The yuan also weakened despite central bank efforts to shore up the tumbling currency following its longest weekly losing streak on record.
The overseas edition of the ruling Communist Party’s People’s Daily newspaper singled out U.S. President Donald Trump in an editorial on Monday, saying he was starring in his own “street fighter-style deceitful drama of extortion and intimidation”.
The direct criticism came after Chinese state media on the weekend accused the United States of blackmail, and said a proposed set of differentiated tariffs on $60 billion worth of U.S. imports showed rational restraint.
The proposal of tariffs on goods ranging from liquefied natural gas (LNG) to some aircraft followed a proposal by the Trump administration of higher 25 percent tariffs on $200 billion worth of Chinese imports to the United States.
Weakness in Chinese shares was particularly evident in healthcare and consumer firms, which have been hit in recent sessions as public anger over a major vaccine scandal has prompted investors to reduce their exposure to the sectors.
The CSI300 sub-index tracking healthcare firms fell 4 percent, while the consumer staples sub-index was off 1.8 percent.
Real estate firms, which have come under pressure on speculation that regulators are planning new measures to curb property price rises, also fell, dragging the real estate sub-index down 2.2 percent.
The slump in Chinese markets on Monday comes after the Shanghai Composite and CSI300 indexes suffered their biggest losses since February last week, weighed by a combination of weak economic data and concerns over the growth impact from the trade war.
“The pressure on China’s economic growth will be relatively heavy amid the trade frictions with the United States, and risk appetite could continue to sour,” said Yang Weixiao, an analyst with Founder Securities in Beijing.
With liquidity still tight, the benchmark Shanghai Composite index could fall below 2,638 points, seen as a key psychological level since early 2016, he said.
“The ‘national team’ could offer some support by buying heavyweight stocks, as they did in late trading sessions in the past days, though the impact would be rather limited,” Yang said, referring to a band of government-backed investors who have been ordered to buy stocks during previous market slumps to support share valuations.
Shares in Hong Kong trimmed earlier gains, with the Hang Seng index finishing up 0.5 percent. The China Enterprises index closed 0.1 percent higher.
After strengthening earlier on Monday, the yuan turned lower, finishing domestic trade at 6.8420 per dollar at 0830 GMT, 132 pips weaker than the previous late session close of 6.8288.
The yuan fell for an eighth consecutive week last week, its longest losing streak since the market rate was unified in 1994.
Traders said that sentiment remained very bearish, despite moves by the central government to stabilise the currency.
On Friday, China’s central bank said it will be setting a reserve requirement ratio of 20 percent from Monday for financial institutions settling foreign exchange forward dollar sales to clients, effectively raising the cost for investors shorting the yuan.
State banks were also seen selling dollars Friday in an attempt to arrest the yuan’s losses.
On Monday, the state-run China Daily also sought to strike a reassuring tone, saying market participants expected a stable yuan and solid growth, and were not worried about the impact of the U.S.-China trade dispute.
The central bank set the yuan’s daily midpoint at 6.8513 per dollar on Monday, its weakest level since May 31, 2017, but largely matching forecasts.
A trader at a Chinese bank said the market believed the latest measures by the central bank were not meant to reverse the depreciation in the yuan, but to control the pace of losses.
Tommy Xie, an economist at OCBC Bank in Singapore, said the move by the PBOC was “not a game changer” but was a strong signal to markets that it was not comfortable with the pace of depreciation.
“Looking back in 2015, the implementation of reserve requirements helped stop the panic sale of RMB for a short period,” he said. “However, it did not stop RMB from weakening further later due to weak sentiment weighed down by the consecutive decline of China’s FX reserves.”
A trader at a Chinese bank in Shanghai said the move to introduce reserve requirements would increase the cost of buying one-year dollar forwards by 400-500 pips per dollar.
Xie added that if market volatility remained high, the PBOC could choose to roll out its counter-cyclical factor, a tool introduced in May in 2017, and paused in January, to reduce price swings and counteract yuan weakness.
He said the PBOC may try to gauge the market reaction to the reintroduction of reserve requirements to determine if the counter-cyclical factor is necessary.