* Offshore yuan hits new low after falling 0.5% against dollar
* China says overnight that U.S. agricultural purchases suspended
* State media accuses U.S. of destroying international order
SHANGHAI, Aug 6 (Reuters) – China’s offshore yuan hit a record low on Tuesday, fuelling fresh selling in global financial markets, after the United States branded Beijing a “currency manipulator” in a rapidly escalating trade war between the world’s two biggest economies.
In a strongly-worded editorial, the official Communist Party newspaper the People’s Daily said the United States’ was “deliberately destroying international order” and holding its own citizens to ransom.
The U.S. Treasury Department said Monday that it had determined for the first time since 1994 that China was manipulating its currency, knocking stock markets and the U.S. dollar sharply lower and sending gold prices to a six-year high.
The announcement came hours after China let the yuan break through the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs on Chinese goods from Sept. 1.
The offshore yuan fell to as low as 7.1397 per dollar in early Asian trade on Tuesday before clawing back most of the losses after China’s central bank said it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency.
Onshore yuan also opened weaker around 7.0699. While the central bank set a slightly firmer-than-expected morning benchmark rate of 6.9683, it was still the weakest since May 2008.
Chinese monetary authorities let the yuan slide past the 7 level so that markets could finally factor in concerns around the Sino-U.S. trade war and weakening economic growth, three people with knowledge of the discussions told Reuters on Monday.
The People’s Bank of China (PBOC) has insisted the value of its currency is determined by the market, though traders say it had been supporting the currency when it threatened to breach the key level over the past year.
The China Daily said in an editorial on Tuesday that the yuan was weak as a result of “unilateral and protectionist moves by the U.S. government” and said long-term exchange rates were decided by “economic fundamentals”.
Analysts said the U.S. move could escalate the trade war, which had already been spreading beyond tariffs to other areas, such as technology.
J.P. Morgan Asset Management APAC Chief Market Strategist Tai Hui said it was “another major setback to the possibility of a trade agreement”.
China’s commerce ministry announced overnight that its companies had stopped buying U.S. agricultural products in retaliation against a move announced by Washington to raise levies on Chinese goods from Sept. 1.
Tommy Xie, head of Greater China research at OCBC Bank in Singapore, said the U.S. decision could trigger a “vicious cycle”.
“The immediate impact is limited as it is usually a long process. The treasury will hold special talks with China and U.S. may consult with IMF, so IMF will also be part of the picture,” he said.
U.S. President Donald Trump had earlier declared China’s move to be “a major violation”, and analysts said it is likely the White House pressured the Treasury Department to issue the designation.
“It’s ridiculous that they’ve declared China a currency manipulator,” said Mark Sobel, a former senior Treasury and IMF official who now works with the Official Monetary and Financial Institutions Forum, a London-based think tank.
“They don’t have any meaningful tools to do anything about it, unless they just want to pile more tariffs on,” he said.
The U.S. move also came less than three weeks after the International Monetary Fund declared the yuan to be in line with China’s economic fundamentals, while the U.S. dollar was overvalued by 6% to 12%. (Reporting by Winni Zhou and David Stanway in SHANGHAI, Andrea Shalal in WASHINGTON; Editing by Kim Coghill)