* MSCI Asia-Pacific index choppy, Hang Seng down over 0.5 pct
* Spreadbetters expect European stocks to open lower
* China state banks seen buying yuan after its fall to 1-yr low
* Dollar sags after Trump shows displeasure towards Fed’s hikes
By Shinichi Saoshiro and Hideyuki Sano
TOKYO, July 20 (Reuters) - The Chinese yuan skidded to one-year lows on Friday, unnerving investors in Asian stock markets and stoking concerns Beijing’s currency management could become the next flash point in a fierce trade dispute with the United States.
Spreadbetters expected European stocks to open lower as volatility gripped Asia, with Britain’s FTSE falling 0.1 percent and Germany’s DAX and France’s CAC both shedding 0.25 percent.
The yuan fell to as low as 6.8128 to the dollar in the onshore market, before major state-owned Chinese banks were seen selling dollars in an apparent bid by authorities to prevent a rapid fall in the currency.
Most equity markets in the region were shaken by the yuan’s continued slide. MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.1 percent in volatile trade.
“There are several channels through which the yuan’s weakening is hitting Asian stocks. First, a weaker yuan challenges the competitiveness of other Asian economies,” said Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo.
“The weaker currency also causes fears of capital leaving China and disrupting their capital markets, which could have knock-on effects on Asia. Lastly, a weaker yuan deepens trade war concerns.”
The yuan had pulled back to 6.7940 to the dollar after initially falling to the low of 6.8128. The currency took a beating earlier in the day after China’s central bank lowered its yuan midpoint for the seventh straight trading session.
Traders said the amount of dollar selling was not huge, and appeared to be aimed at controlling the pace of depreciation of the yuan, which has been battered over the past several weeks by the heated Sino-U.S. trade dispute.
Global markets are sensitive to any sharp moves in the yuan. China’s unexpected devaluation of the yuan in 2015 and the subsequent sharp sell-off of the currency spread turmoil in global financial markets as investors worried about the stability of the world’s second-largest economy.
“Investors do not know how far the yuan could fall,” said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong.
“(The authorities) might want to keep economic growth stable, and the direct impact of a weaker yuan could offset some negative impact from the trade war. But it will be hard to maintain confidence among foreign investors in purchasing yuan-denominated assets.”
Asian stock markets were already edgy after Wall Street shares declined overnight amid the latest flare up in trade tensions, with the Dow shedding 0.53 percent and the S&P 500 declining 0.39 percent.
Japan’s Nikkei lost 0.8 percent while Hong Kong’s Hang Seng slipped 0.55 percent. In mainland China, the Shanghai Composite Index was down 0.12 percent.
Worries about a full-blown global trade war are likely to persist as officials from the EU Trade Commission, due to arrive in Washington next week for trade talks, are said to be preparing a list of tit-for-tat actions in response to proposed U.S. tariffs on EU cars.
In currencies, the dollar was on the defensive following U.S. President Donald Trump’s criticism of Federal Reserve policy.
Trump on Thursday criticised Fed policy and expressed concern about the potential impact of rising rates and a stronger dollar on the U.S. economy and American corporate competitiveness.
The dollar index against a basket of six major currencies was 0.1 percent lower at 95.071 after being knocked down from 95.652, its highest level since July 2017.
The dollar had reached that high after Federal Reserve Chairman Jerome Powell expressed confidence in the U.S. economy and affirmed expectations that the central bank was on track to keep hiking interest rates gradually.
The euro added 0.15 percent to $1.1661, lifted from a three-week trough of $1.1575 set overnight. The single currency has lost about 0.3 percent this week.
The greenback lost 0.2 percent to 112.280 yen. It has been knocked away from one-year peak of 113.18 scaled on Thursday.
Brent crude futures rose 0.2 percent to $72.71 a barrel, maintaining their gains so far this week, after Saudi Arabia’s OPEC governor said the kingdom’s exports are likely to fall next month. (Reporting by Shinichi Saoshiro Additional reporting by Hideyuki Sano in Tokyo and Winni Zhou, Andrew Galbraith in Shanghai Editing by Sam Holmes & Shri Navaratnam)