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China shares, currency surge on suspension of trade hostilities

ReutersSHANGHAI/HONG KONG (Reuters) — Shanghai shares saw their biggest daily gain in a month and the yuan firmed on Monday after Chinese and U.S. leaders agreed to a temporary truce in a bitter trade war, but the longer-term outlook for trade relations and Chinese markets remains murky.

The deal between Presidents Donald Trump and Xi Jinping postponed the most pressing threat to the global and Chinese economies — a sharp hike in U.S. tariffs that had been slated for Jan. 1.

But analysts cautioned it has only bought three more months for wrangling over deeply divisive trade and policy issues, and predicted China’s economy will continue to cool regardless under the weight of faltering domestic demand.

Still, the news offered some relief for the country’s battered stock markets, which had tumbled over 20 percent at one point this year, prompting a flurry of support measures.

The benchmark Shanghai Composite index closed 2.6 percent higher at 2,654.80 points and the blue-chip CSI300 index jumped 2.8 percent. Both posted their best daily gains since Nov. 2.

“This is a relief rally. The markets are oversold. I don’t think we needed much of an excuse [for a rebound],” said Paul Kitney, chief equity strategist at Daiwa Capital Markets in Hong Kong.

The agreement “is not a ceasefire, it’s just a deescalation. The existing tariffs are still having a negative impact on the Chinese economy, they haven’t gone away.”

Shares in auto parts makers with overseas operations and automobile dealers surged in the afternoon, while domestic vehicle makers trimmed gains, after Trump said on Sunday that China had agreed to “reduce and remove” tariffs on U.S. cars.

In Hong Kong, the Hang Seng index added 2.6 percent and the China Enterprises Index rose 2.4 percent.

The White House said Beijing had agreed to buy an unspecified but “very substantial” amount of U.S. products and said the two sides would launch new talks to address issues including technology transfer and intellectual property.

But the White House also said the existing 10 percent tariffs on $200 billion worth of Chinese goods would be lifted to 25 percent if no deal was reached within 90 days.

The agreement was more than investors had expected, but is unlikely to spark an immediate turnaround for markets, said Zhang Gang, an analyst at China Central Securities in Shanghai.

“While this means the effect of the trade war may pause for a moment, we’re still facing domestic issues including slowing growth, and awaiting more information about the direction of macroeconomic policy and eagerly expected measures like tax cuts.”

The yuan rose 0.8 percent to break through the 6.90-per-dollar mark. It has lost nearly 6 percent so far this year as trade ties deteriorated and the U.S. dollar firmed, and some analysts had forecast it would slide further if the trade war escalated.

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