* Emerging market shares up after 10 days of losses
* Yuan slips after PBOC fixes mid-point at 6.996 per dollar
* Indian central bank cuts interest rate more than expected
By Sruthi Shankar
Aug 7 (Reuters) – Emerging market shares rose marginally to end a 10-day losing streak on Wednesday and most currencies recovered as investors found solace in Washington’s assertion that it wants to continue trade talks with Beijing.
Signs that Chinese officials will step in to stabilise the yuan helped to inject some calm, having previously let it fall beyond the psychologically important level of 7 yuan to the dollar for the first time in 11 years.
Sources told Reuters that major state-owned banks have been active in the yuan forwards markets this week, using swaps to curb dollar supply as authorities sought to slow the currency’s decline.
However, in a sign of generally shaky market confidence, the yuan slid 0.2% after the People’s Bank of China (PBOC) set the midpoint rate at 6.996 per dollar, its weakest since May 15, 2008.
“The Chinese authorities can deploy their formidable defences to stop or slow the depreciation … However, the upside risks to USD-CNY have intensified and we now forecast modestly higher than our previous forecasts (to 7.10, 7.15, 7.20, 7.25) over the next four quarters,” Societe Generale’s emerging market strategists wrote in a note.
Investors were sifting through this week’s events after Monday’s slump in the yuan rattled financial markets on fears that the tit-for-tat trade war between the United States and China could spread to a currency war.
U.S. President Donald Trump dismissed fears of a protracted trade war on Tuesday despite a warning from Beijing that labelling it a currency manipulator would have severe consequences for the global financial order.
That helped the MSCI index of emerging stocks to eke out a 0.2% gain, while currencies steadied.
The Indian rupee firmed by 0.4%, breaking six straight days of losses, after its central bank cut interest rates by 35 basis points to 5.4%.
Meanwhile, the Thai baht shed 0.3% after its central bank unexpectedly cut its benchmark interest rate for the first time since 2015 in efforts to support faltering growth and weaken Asia’s best-performing currency this year.
Developing world markets have experienced large capital inflows this year as major central banks adopt accommodative policies to offset slowing growth.
The Turkish lira climbed to its strongest against the dollar since April 2 and the Russian rouble edged higher for a second day running.
The South African rand rose 0.3% even as central bank data showed the country’s net foreign reserves fell to $43.906 billion in July from $43.940 billion in June.
In eastern Europe, the Hungarian forint slipped 0.2% against the euro as industrial output fell more than forecast in June.
For GRAPHIC on emerging market FX performance 2019, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2019, see https://tmsnrt.rs/2OusNdX
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For RUSSIAN market report, see (Reporting by Sruthi Shankar in Bengaluru Editing by David Goodman)