Currencies in Asia tumbled and stocks in China fluctuated after China's central bank devalued its tightly controlled currency.
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The central bank's move sent the yuan down 1.6% against the U.S. dollar early Tuesday. The U.S. dollar rose to as high as 6.3299 Chinese yuan from its close 6.2136 late Monday.
The move comes after disappointing Chinese trade data over the weekend cast doubt on the economic health of the world's no. two economy. It also follows the International Monetary Fund's recent announcement to delay its decision on whether to include the yuan in its basket of reserve currencies.
The yuan's fixing against the U.S. dollar was lowered 1.9% Tuesday from the previous day, its biggest-ever move in a single day. The yuan is allowed to trade 2% above or below the People's Bank of China's daily reference rate against the U.S. dollar.
China shares wavered between negative and positive, a day after the market posted its largest daily percentage gain in a month. The Shanghai Composite Index was last down 0.1% while the smaller Shenzhen market was up 0.3%.
A weaker yuan could threaten other economies in the region that compete with Chinese exports, and the move sent other currencies in Asia lower. A weaker yuan could encourage other central banks in the region to devalue their currencies to stay competitive.
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The U.S. dollar rocketed to as high as 1170.80 South Korean won, from 1158.20 late yesterday in Asia. The Korean won was last down 0.8% to trade at 1167.50 to the U.S. dollar.
The Thai baht fell 0.4% to trade at 35.20 to the U.S. dollar while the Singapore dollar fell 0.5% against the U.S. dollar.
The New Zealand dollar and Australian each fell by more than 0.5% each against the U.S. dollar.
Stock markets elsewhere in the region were mixed, following hopes of Chinese stimulus after weak data but a rise in U.S. stocks overnight.
The Nikkei Stock Average was up 0.6%, the S&P ASX 200 is down 0.7% and South Korea's Kospi was up 0.8%.
The recovery on Wall Street as well as expectations for further policy from China to support the economy may help Japan shares, said Hiroichi Nishi, general manager of equity division at SMBC Nikko Securities.
Weak economic data lifted expectations that Beijing would boost spending and continue to prop up the market by buying shares. Talk about a possible merger between China's state-shipping giants revived hopes for reform of state-owned enterprises.
Data Tuesday showed the new yuan loans in China hit a six-year high of 1.48 trillion yuan ($238.3 billion) in July, up from 1.27 trillion yuan in June.
A stronger Japanese yen, often a negative for Japanese exporters, capped the Nikkei's gains. The U.S. dollar traded at Yen124.12, compared with Yen124.61 at late Monday in Asia.
While Brent oil was down 0.5% to $50.14 in Asia trade, prices were up from multi-month lows after on a forecast drop in U.S. shale-oil production and rumors of an emergency meeting of the Organization of the Petroleum Exporting Countries.
James Glynn contributed to this article.
Write to Chao Deng at Chao.Deng@wsj.com
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