Yuan Snaps Two-Day Gain as PBOC Cuts Fixing Amid Growth Concern

China’s yuan halted a two-day gain as the central bank lowered the reference rate for the currency amid concern Europe’s debt crisis is hurting exports from Asia’s biggest economy.

The People’s Bank of China weakened the yuan’s daily fixing for a third day by 0.03 percent to 6.3459 per dollar. Profits at Chinese industrial companies fell for a fifth month in August, a government report showed today, adding to signs the nation’s economic slowdown is extending into a seventh quarter. The euro traded near a two-week low amid concern public protests against austerity measures in Spain and Greece will delay efforts to resolve Europe’s debt crisis.

“The market is still focusing on the slowdown in the mainland economy as Europe’s crisis prolongs troubles in the export sector,” said Patrick Cheng, a currency analyst at Haitong International Securities Co. in Hong Kong. “Everybody is expecting some new policies to boost the economy.”

The yuan weakened 0.01 percent to 6.3025 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency, which can trade as much as 1 percent on either side of the daily fixing, gained 0.7 percent this month and 0.8 percent this quarter. One-month implied volatility, a measure of exchange-rate swings used to price options, decreased 10 basis points, or 0.01 percentage point, to 1.15 percent.

Net income at industrial companies fell 6.2 percent from a year earlier to 381 billion yuan ($60 billion), the National Bureau of Statistics said in Beijing. That compares with a 5.4 percent slide in July and a 1.7 percent drop in June.

‘Growth Model Exhausted’

Demonstrators gathered near parliament in Madrid yesterday before Spanish Prime Minister Mariano Rajoy submits a fifth package of budget cuts, while Greek police in Athens dispersed protesters with tear gas.

China’s strategy of using an “undervalued currency” and building foreign-exchange reserves to fuel growth has come to an end, billionaire investor George Soros said yesterday in New York. “The growth model that has been driving it has been exhausted,” Soros said. “They have to change.”

More than 10 Chinese provinces and municipalities have rolled out regional economic stimulus measures since June, taking the total planned spending to almost 20 trillion yuan, compared with the 4 trillion yuan plan that the central government introduced in 2008, China Business News reported today, citing its own calculations.

Twelve-month non-deliverable forwards gained 0.03 percent to 6.4185 per dollar in Hong Kong, according to data compiled by Bloomberg. That was a 1.8 percent discount to the spot rate in Shanghai. In Hong Kong’s offshore market, the yuan fell 0.1 percent to 6.3125.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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