Chinese shares ended higher on Tuesday, and the country's central bank guided the yuan to its highest daily fix in almost a month as Beijing sought to keep markets calm heading into the Lunar New Year holidays.
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The Shanghai Composite Index gained 2.3 percent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2.1 percent, but trading volumes were low again, as a turbulent January frightened off many investors.
The gains recouped Monday's losses, incurred after official surveys of China's manufacturing and services sectors sent ripples of selling through global markets, but barely made a dent in the indexes' losses so far this year, which now stand at 21-22 percent.
"The data suggest continued uncertainties and headwinds to the outlook," wrote Shengzu Wang, an analyst at Barclays. "We have seen no sign of stabilization since the start of 2016."
Wang was surprised China's central bank had not cut interest rates or banks' reserve requirements in January, and has instead relied on huge injections of funds to tide the banking system over the holiday period.
The People's Bank of China (PBOC) may have been concerned that such cuts would only prompt capital flight and encourage more speculators to bet on yuan devaluation.
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It has been fighting to keep the currency stable through a series of higher daily yuan fixes and a range of measures that essentially make it very expensive to short the currency.
On Tuesday, it set the yuan at 6.5510 per dollar, the highest fix since Jan. 6, when a sudden drop in the currency sparked worldwide concerns Beijing was seeking a competitive depreciation.
Still, many analysts suspect the currency will be allowed to drift lower over time both to help underpin exports and fight deflation risks at home. Some investors with deep pockets are laying money on it.
Hedge funds have ramped up bets on a devaluation since the Bank of Japan cut interest rates below zero last week.
Reuters data showed riskier bets that only pay out if the yuan weakens to levels well above 7 per dollar passed peaks hit around Beijing's one-off mini-devaluation last August.
"Since the Bank of Japan was so doveish last week, all of these countries are under a lot more pressure to devalue," said a dealer with one Asian bank in London.
Such talk will only heighten the focus on the PBOC's reserves position, due to be reported some time this week, for details on just how much intervention has been needed to shelter the yuan from capital flight.
(Writing by Wayne Cole; Editing by Sam Holmes and Will Waterman)