July 6, 2018 / 2:20 AM / in 14 days

UPDATE 2-With tariffs imminent, Chinese stocks and currency slip

(Updates prices, adds quotes)

SHANGHAI, July 6 (Reuters) - Chinese stocks and the yuan slipped on Friday morning ahead of the implementation of major tariffs that will significantly shift the U.S.-China trade row to a new level and cloud the global economic outlook.

At 0307 GMT, the benchmark CSI300 Index was down about 1 percent after trading in positive territory earlier. The Shanghai Composite Index also slipped into the red, trading down about 1.2 percent near fresh two-year lows.

The fall put Shanghai stocks on track for their seventh week of declines in a row.

“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.

The yuan, meanwhile, was at 6.6566 per dollar and trading in a tight, wait-and-see range after ending the late session on Thursday at 6.6371.

“There shouldn’t be huge volatility in the market because it’s all expected. Investors know what’s going to happen and it has already been priced in,” said Li Liuyang, senior foreign exchange analyst at China Merchants Bank in Shanghai, referring to the yuan market.

“The market will pay attention to any follow up, whether Trump escalates further, or anything unexpected happens.”

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.

The United States is set to impose tariffs on $34 billion of Chinese imports from 0401 GMT on Friday and has warned it may ultimately target over $500 billion worth of goods, or roughly the total amount the United States imported from China last year.

Beijing has vowed to immediately respond with an equal amount of tariffs of its own against U.S. autos, agricultural and other products, though it is unclear how swiftly the actions could escalate into an all-out trade war. (Reporting by Winni Zhou, Liu Luoyan and John Ruwitch; Editing by Sam Holmes)

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