Stocks scale peaks, yuan drops most in three years

Tue Feb 25, 2014 8:04am EST
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By Marc Jones

LONDON (Reuters) - World shares hit a six-year peak on Tuesday on the heels of a record Wall Street high, while moves by China to stamp out easy betting on the yuan triggered the currency's biggest drop in over three years.

The upbeat mood among equity investors in the United States and Europe helped steady markets after the sharp plunge in the yuan and talk of credit tightening led Beijing stocks .SSEC to their biggest drop since September.

The yuan has entered a dramatic weakening cycle in recent weeks, guided by a series of moves by the central bank aimed at instilling caution into those who for years have been betting on its rise versus other major currencies.

Tuesday saw a significant acceleration in the move. The yuan's sharpest drop since November 2010 extended its fall in the past week to just over 1 percent, amid talk the People's Bank of China (PBOC) had been discreetly intervening in the spot market.

"The yuan move has some relation to the slowdown in the Chinese economy but it looks more that it has been orchestrated by the PBOC to make it more of a two-way street for speculators," said Societe Generale strategist Alvin Tan.

"It is likely to simmer down from here, it has wiped out pretty much all of the speculators' recent gains now."

China allows the yuan to move 1 percent above or below a midpoint set daily but experts believe the recent depreciation is intended to set the stage for a widening of that band to 2 percent or more this year to make it more free moving.

Uncertainty over China is stoking worries about a faster-than-projected slowdown in its massive economy and is combining with worries about other key emerging markets like Ukraine, Thailand, Nigeria and Turkey where there has been unrest.   Continued...

An office worker walks past the board of the Australian Securities Exchange building displaying its logo in central Sydney April 5, 2013. REUTERS/Daniel Munoz