text: BEIJING (AP) — China's currency fell further Wednesday following a surprise change in its exchange rate mechanism that rattled global markets and threatens to fan trade tensions with the United States and Europe. 
   
   In this Tuesday, Aug. 11, 2015 photo, a bank clerk counts Chinese currency notes at a bank outlet in Huaibei in central China's Anhui province. China’s surprise move on Tuesday to devalue its currency... (Associated Press) 
   
   In this Tuesday, Aug. 11, 2015 photo, a bank clerk counts Chinese currency notes as her colleague attends a customer at a bank outlet in Huaibei in central China's Anhui province. China’s surprise move... (Associated Press) 
   
   The central bank said the yuan's 1.9 percent devaluation Tuesday against the U.S. dollar, which was its biggest one-day fall in a decade, was due to changes aimed at making the tightly controlled currency more market-oriented. That raised the prospect of still more declines, which would help struggling Chinese exporters at the expense of foreign competitors and might shore up flagging economic growth. 
   
   On Wednesday, the yuan dropped another 1.6 percent. In theory, it could drop 2 percent every day given it can trade 2 percent around a rate that is set based on the previous day's closing value. 
   
   Until now, China has set the yuan's value each day based on a basket of currencies that is believed to be dominated by the U.S. dollar. That meant the yuan rose as the dollar jumped over the past year, hurting its exporters and raising the threat of politically dangerous job losses. Exports in July plummeted by an unexpectedly steep 8.3 percent from a year earlier. 
   
   The People's Bank of China promised Tuesday to keep the exchange rate "basically stable," but Wednesday's decline prompted suggestions the yuan is likely to fall further. 
   
   The yuan is likely to see "continued strong influence" from the central bank, with Tuesday's change "probably marking the start of an engineered depreciation," said Mizuho Bank in a report. 
   
   Many economists cautioned against seeing Beijing's move mainly as an effort to benefit its exporters. They note that China's currency, left to market forces alone, would have declined in value in recent months. 
   
   The depreciation "will not change the gloomy picture of global demand," said Vincent Chan of Credit Suisse in a report. "The 2 percent devaluation cannot provide any meaningful help, but it caught the market by surprise." 
   
   U.S. stocks tumbled Tuesday, with the Dow Jones industrial average closing down 212 points. 
   
   China becomes the third major trader to take actions that lower the value of its currency. Initiatives by Japan and the European Union over the past two years depressed the yen and euro by a wider margin than this week's decline in the yuan. 
   
   The yuan, also known as the renminbi, is allowed to fluctuate in a band 2 percent above or below a rate set by the People's Bank of China based on its currency basket. 
   
   The bank said that starting Tuesday, the daily target will be based on the yuan's closing the previous day and information from traders about supply and demand for the currency. 
   
   The change presented a dilemma for China's trading partners, who have called repeatedly for Beijing to let market forces set its exchange rate but don't want to see the yuan weaken. 
   
   It sparked complaints in Washington, where members of Congress have long complained Beijing manipulates its currency to gain a trade advantage. 
   
   "For years, China has rigged the rules and played games with its currency," said U.S. Sen. Chuck Schumer. "Rather than changing their ways, the Chinese government seems to be doubling down." 
   
   The U.S. Treasury Department's response was more measured. 
   
   "China has indicated that the changes announced today are another step in its move to a more market-determined exchange rate," a department statement said. 
   
   The International Monetary Fund said the change "appears a welcome step" to give market forces a bigger role. 
   
   "The exact impact will depend on how the new mechanism is implemented in practice," said an IMF statement. "We believe that China can, and should, aim to achieve an effectively floating exchange rate system within two to three years." 
   
   The IMF said the latest change would have no effect on the decision about whether to add the yuan to the dollar, the euro, the yen and the British pound in the basket of currencies used to set the value of the Fund's in-house currency, called Special Drawing Rights. The IMF staff recommended last week that China wait until at least October 2016 to join. The Fund's board is due to consider that recommendation in October. 
   
   China's economic growth has slowed to an annual rate of just 7 percent, which is healthy for most countries but far below the previous decade's double-digit pace. 
   
   The Federal Reserve is expected to boost the short-term interest rate it controls later this year. A rate hike would likely raise the value of the dollar, which has already jumped about 14 percent in value in the past 12 months against a basket of foreign currencies. 
   
   The rising dollar has hurt U.S. exporters by making their goods costlier abroad, and China's devaluation could further complicate the Fed's decision on when to raise rates. By making Chinese goods comparatively cheaper in the United States, a weaker yuan would push already-low U.S. inflation even lower. 
   
   The Fed wants to be "reasonably confident" that inflation is returning to its 2 percent target before raising rates. Inflation has risen just 1.3 percent in the past 12 months. 
   
   Michael Feroli, an economist at JPMorgan Chase, suggested the dollar's rise poses a concern for some Fed officials, known as doves, who have been reluctant to raise rates. Should the U.S. economy stumble in the coming weeks, "dollar strength would only further embolden the doves at the next meeting" in September, Feroli said. 
   
   Still, Feroli said, "we think this a minor stumbling block for a September" rate increase. 
   
   USB economist Tao Wang said Beijing would likely move cautiously, but investor expectations of further weakening "could quickly become entrenched" and cause the yuan to "depreciate quite quickly and significantly." 
   
   She said that would represent a "sea change in China's exchange rate policy" but would help to support flagging economic growth. 
   
   ___ 
   
   Rugaber contributed from Washington. AP Economics Writer Paul Wiseman in Washington and AP Writer Teresa Cerojano in Manila contributed to this report. ||||| SHANGHAI China's currency fell to a four-year low on Wednesday, slumping for a second day, after a central bank devaluation on Tuesday, and government sources believe the yuan may be allowed to slide even further to help the country's exporters. 
   
   The yuan traded in China hit a low of 6.4510 per U.S. dollar, its lowest since August 2011, and the currency fared worse in international trade, touching 6.59 to the dollar. 
   
   The currency has lost 3.5 percent against the U.S. dollar in China in the last two days, and around 4.8 percent in global markets after the People's Bank of China (PBOC), the central bank, changed the way it calculates the reference rate around which the yuan is allowed to trade in a two percentage point band. 
   
   The PBOC said it would now calculate the daily yuan fix, by taking more notice of market forces, including the closing price in the previous day's trading session. 
   
   The devaluation sparked fears of a global "currency war" and accusations that Beijing was unfairly supporting its exporters, but the central bank on Wednesday sought to reassure financial markets that it was not embarking on a steady depreciation. 
   
   "Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan," the People's Bank of China (PBOC) said. 
   
   After the yuan slid further in early in Wednesday trade currency dealers said Chinese state-owned banks were seen selling dollars on behalf of the PBOC to restrain the yuan's fall, and the spot market rate recovered late in the day to close 6.3870, a rate which will influence Thursday's setting. 
   
   "Apparently, the central bank does not want the yuan to run out of control," said a trader at a European bank in Shanghai. 
   
   However, sources involved in the Chinese policy-making process said powerful voices within government were pushing for the yuan to go still lower, suggesting pressure for an overall devaluation of almost 10 percent. 
   
   Tuesday's yuan devaluation followed a run of poor economic data and resulted in the biggest one-day fall since 1994, raising market suspicions that China was embarking on a longer-term depreciation of its exchange rate that would make Chinese exports cheaper. 
   
   Data on Chinese factory activity growth and retail sales on Wednesday underlined sluggish growth in the world's second-largest economy, while fiscal expenditures jumped 24.1 percent in July, reflecting Beijing's efforts to stimulate economic activity. 
   
   China's Ministry of Commerce acknowledged on Wednesday that the depreciation would have a stimulative effect on exports, as some Chinese steel producers have already cut export prices in response to the lower yuan. 
   
   Economic growth in China has slowed markedly this year and will hit a 25-year low even if it meets its official 7.0 percent target. Some economists believe China's economy is already growing only half as fast as official data shows, or even less. 
   
   Analysts at BMI Finance Ltd in Hong Kong downgraded their year-end forecasts for the currency to 6.83, down 10 percent from pre-devaluation levels. 
   
   The currency's slide puts other Asian economies at a disadvantage also and resulted in Indonesia's rupiah and Malaysia's ringgit hitting 17-year lows on Wednesday. The Australian and New Zealand dollars also fell to six-year lows. 
   
   Indonesia's central bank pinned the rupiah's fall directly on the yuan devaluation and said it would step into the foreign exchange and bond markets to curb volatility. 
   
   STOCKS FALL AGAIN AFTER YUAN SLIDE 
   
   Stocks on major world markets fell again on Wednesday in the wake of the yuan devaluation as exporters to China feared a loss of competitiveness. 
   
   An MSCI index of stocks on major world markets lost about 0.5 percent. Companies with notable exposure to China, including German automaker BMW and U.S. luxury goods maker Coach, lost 3.7 percent and 4.4 percent respectively. 
   
   Investors sought safety in top-rated government bonds, driving yields on German two-year bonds to a record low and pushing U.S. Treasury yields down, with some analysts saying a long-awaited Federal Reserve interest rate rise may now be delayed. 
   
   Trading in money markets showed investors are reducing expectations for a Fed interest rate increase in September due to concerns about global disinflation pressures resulting from China's moves. 
   
   "Volatility is picking up and it’s causing turmoil, it’s pushing bond yields lower and it’s casting more doubt on the Fed," said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments. 
   
   PLAYING TO THE IMF? 
   
   The International Monetary Fund said China's move to make the yuan more responsive to market forces appeared to be a welcome step and that Beijing should aim for an effectively floating exchange rate within two to three years. 
   
   Beijing has been lobbying the IMF to include the yuan in its basket of reserve currencies known as Special Drawing Rights, which it uses to lend to sovereign borrowers, which would enable more international use of the yuan. 
   
   "Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets," an IMF spokesperson said. 
   
   William Dudley, head of the New York Federal Reserve, also said an adjustment to the yuan was probably appropriate if the Chinese economy was weaker than the authorities had expected. 
   
   On a trade-weighted basis, China's yuan has been rising in recent years in part because of its peg to the U.S. dollar. The yuan has gained more than 14 percent over the last year when factoring in inflation, according to data from the Bank for International Settlements, making its exports less competitive. 
   
   However, the devaluation was decried by U.S. lawmakers from both parties on Tuesday as a grab for an unfair export advantage and could set the stage for testy talks when Chinese President Xi Jinping visits Washington D.C. next month, given acrimony over issues ranging from cybersecurity to Beijing's territorial ambitions in the South China Sea. 
   
   (This story has been refiled to correct paragraph one spelling of devaluation) 
   
   (Additional reporting by Samuel Shen in SHANGHAI and Jason Subler in BEIJING; Writing by Will Waterman, Nigel Stephenson and David Gaffen; Editing by Mike Collett-White and Clive McKeef) ||||| Stocks, currencies and commodities fall sharply across region as investors fear a stalling China economy and possible currency war despite Beijing’s assurances 
   
   China stunned the world’s financial markets on Wednesday by devaluing its currency for a second consecutive day, triggering fears its economy is in worse shape than investors believed. 
   
   The move sent fresh shockwaves through global markets, pushing shares sharply lower and sending commodity prices further into reverse as traders feared the move could also ignite a currency war that would destabilise the world economy. 
   
   There were widespread losses on stock exchanges in Asia, and in Europe markets suffered falls of about 1%, with the FTSE 100 in London tumbling almost 2% at one stage before settling at 6571, down 1.4%. 
   
   The Chinese authorities have acted after a string of poor economic figures showed that previous efforts to boost exports and growth against the headwind of an overvalued currency had failed. 
   
   A drop of 6.6% in car sales in July followed data at the weekend showing an 8% fall in exports and slowing business investment growth in the same month. A survey tracking China’s factory output for July also missed expectations, coming in at 6% year-on-year growth instead of the 6.6% expected. 
   
   One financial analyst said the devaluation, which pushed the yuan to a four-year low, heralded a tidal wave of cheap goods from Asia as other south east Asian countries followed suit. 
   
   Albert Edwards, analyst at Societe Generale, said the yuan had become overvalued against the dollar in recent years and was unsustainably high relative to other major currencies. 
   
   The Chinese currency hit a four-year low on Wednesday after the People’s Bank of China set the yuan’s daily midpoint even weaker than in Tuesday’s devaluation. 
   
   
   
   Market slide as China moves to weaken yuan again - live Read more 
   
   Unlike the pound and other major currencies, the yuan’s value is determined each day by the People’s Bank based on movements the previous day. As part of the devaluation, the authorities said they would widen the criteria to include more market information, allowing the currency to rise or fall more rapidly than before. 
   
   The central bank sought to reassure financial markets that it was not embarking on a steady depreciation. 
   
   “Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” it said. 
   
   A spokesman said the downward movement of the currency was a result of a project to liberalise its management and not a deliberate attempt to drive down its value. 
   
   But with the bank having said on Tuesday that that day’s action was a “one-off depreciation”, the rapid two-day drop in the value of the currency of about 4% dealt a blow to investors. They fear a prolonged currency war that could damage world trade should the US and Japan retaliate and drive down the value of the dollar and yen. 
   
   
   
   Oil prices remained below $50 a barrel, down from more than $110 a barrel last summer when the slowdown in China first became apparent. The prices of key industrial and construction metals – nickel, copper and aluminium – hit six-year lows. 
   
   
   
   Rajeev De Mello, head of Asian fixed income at Schroders in Singapore, said: “While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world.” 
   
   Chinese yuan: everything depends on what happens next Read more 
   
   The two devaluations come after a run of poor economic data and have raised suspicions that China is embarking on a longer-term slide in the exchange rate. 
   
   A cheaper yuan will help Chinese exports by making them less expensive on overseas markets. 
   
   The first move on Tuesday was the biggest one-day fall in the yuan since a massive devaluation in 1994. On Wednesday the yuan fell to 6.43 against the dollar, its weakest point since August 2011. The currency fared worse in offshore trade, touching 6.57. 
   
   Why has China devalued its currency now and what impact will it have? Read more 
   
   The International Monetary Fund said China’s move to make the yuan more responsive to market forces appeared to be a welcome step and that Beijing should aim to achieve an effectively floating exchange rate within two to three years. 
   
   Beijing has been lobbying the IMF to include the yuan in its basket of reserve currencies, known as Special Drawing Rights, which it uses to lend to sovereign borrowers. This would mark a major step in the international use of the Chinese currency. 
   
   “Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets,” an IMF spokesperson said. ||||| Photo Advertisement Continue reading the main story 
   
   HONG KONG — As President Xi Jinping of China prepares for a state visit to Washington next month to smooth over troubled relations, his government has just turned the spotlight back on a recurring issue: the value of his country’s currency. 
   
   The currency, the renminbi, is part of the fabric of the global economy, providing a way for China to further its diplomatic and investment goals. The renminbi is also an important tool for the leadership’s domestic agenda, namely supporting its economy. 
   
   China now faces the difficult dilemma of trying to balance its needs at home and abroad. 
   
   When China abruptly devalued its currency nearly 2 percent on Tuesday morning, authorities said market forces would play a bigger role in determining the value of the renminbi. After the renminbi fell further during trading on Tuesday, the central bank set the currency another 1.6 percent lower on Wednesday morning. 
   
   The United States and others have long called for Beijing to let the currency move more freely, rather than keeping it under such tight control. China’s restrictions on the renminbi have also been a concern of the International Monetary Fund, which is weighing whether to include the renminbi in an elite group of world currencies along with the dollar, the euro and the yen. 
   
   But China has another, seemingly contradictory, motive. In devaluing its currency, China is giving priority to its domestic needs. As China’s economy slows, a weaker currency will help buoy the country’s exporters and create jobs at home. 
   
   Surging blue-collar wages in China coupled with recent declines in the currencies of rival exporters like South Korea and Taiwan have made it harder for Chinese companies to compete in labor-intensive industries like garment manufacturing and shoe production. Chinese exports fell 8 percent last month compared with a year ago. 
   
   “When the renminbi was appreciating, our customers, who are mainly from North America and Europe, had complained about our prices being too high,” said Anna Cho, sales manager of the Shanghai Kaiyuan Pump Industrial Company, a maker of water and sewage pumps. “They will be happy about this new development,” she said, referring to the currency devaluation. 
   
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   The coming months will provide a test of whether the leadership is focused more on reforms or on the nation’s economy. While Beijing wants a weak currency, it does not want it to go too low. 
   
   On Tuesday, traders bet heavily that the renminbi would continue to fall. If Beijing follows through on its pledge to let the market play a much bigger role, more declines will follow. 
   
   “If they really do it, it may be going down and down and down,” said Diana Choyleva, the chief economist at Lombard Street Research, a consulting firm in London. 
   
   Devaluing the renminbi weeks before President Xi’s visit to the United States also poses clear political challenges at a time when China is trying to smooth over trans-Pacific disputes. 
   
   In recent weeks, China announced a halt to its controversial construction of artificial islands in the South China Sea. It has also had an uncommonly muted response to American accusations of digital espionage. 
   
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   The devaluation risks inflaming a seemingly dormant political issue in the United States: whether China manipulates its currency to gain a trade advantage. Critics in Congress have long argued that the renminbi is undervalued and that this dynamic has prompted many companies to move production to China. 
   
   “For years, China has rigged the rules and played games with its currency, leaving American workers out to dry. Rather than changing their ways, the Chinese government seems to be doubling down,” said Senator Chuck Schumer, Democrat of New York. 
   
   Under President George W. Bush and now under President Obama, the Treasury has been cautious about publicly criticizing China on currency policy. Treasury officials have not wanted to incite Chinese defiance, and they have tended to respect China’s contention that its trade surpluses, though huge, have shrunk as a percentage of its growing economy. 
   
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   “We will continue to monitor how these changes are implemented and continue to press China on the pace of its reforms, including additional measures to transition to a market-oriented exchange rate and its stated desire to move towards an economy that is more dependent on domestic demand, which is in China and America’s best interests,” a Treasury representative said in a statement on Tuesday. “Any reversal in reforms would be a troubling development.” 
   
   China’s action could also factor into the Federal Reserve’s thinking. 
   
   The Fed’s leaders have been talking for months about raising interest rates as a way to curb the considerable monetary stimulus they have delivered to the strengthening American economy. But a weakened renminbi — and the possibility that other countries may follow suit — could mean further weakening of American exports and slower economic growth. 
   
   “It could lower the odds of a Fed rate hike in the near term,” said Thomas Lam, the chief economist for industrialized economies at RHB Securities Singapore, a unit of a Malaysian financial conglomerate, the RHB Group. 
   
   The currency situation puts China in a tricky position. 
   
   China has the means to stop any unwanted drop in currency. The country has $3.5 trillion in foreign exchange reserves, which it can use to buy back renminbi globally and push up the value. 
   
   But the devaluation also comes at a time when China is pushing for broader acceptance of the renminbi, and the exercise of tight currency controls undermines that effort. 
   
   The International Monetary Fund contended for years that the renminbi was undervalued, but it dropped that assertion in May. Still, the I.M.F. in a staff report last week suggested that China would need more time to finish preparations for including the renminbi as a global reserve currency. 
   
   The I.M.F., in particular, wants to see more evidence that the renminbi is being used outside China, notably for central bank reserves or bonds. The appetite among overseas central banks and bond investors for renminbi-denominated assets has gradually increased. 
   
   But part of the demand has been a speculative bet that the renminbi will continue to rise against the dollar. Even small, occasional hints in the last 18 months that the renminbi might weaken have tended to erode such players’ enthusiasm. So Tuesday’s devaluation could damage China’s bid to bolster international use of its currency. 
   
   The I.M.F. on Tuesday said that China’s new plan for determining the value of the renminbi “appears a welcome step as it should allow market forces to have a greater role.” But “the exact impact will depend on how the new mechanism is implemented in practice.” 
   
   Senator Schumer warned that the devaluation might lower the chances that the renminbi will be recognized by the I.M.F. as a leading currency, as part of the fund’s so-called special drawing rights. 
   
   “Unless and until China stops artificially devaluing their currency,” he said, “the renminbi should be barred from consideration as a global reserve currency by the I.M.F.”
target: – In a move that some analysts fear could be the start of a "global currency war," China's yuan dropped again today, dragging other Asian currencies down with it. Today's drop against the dollar was the second biggest since 1994, exceeded only by yesterday's, and the rapid fall has led some to believe that the country is trying to boost exports and create jobs at the expense of rivals like South Korea, Reuters notes. It's not clear how long the drop will continue: China has described the devaluation as a "one-off," and the New York Times notes that with $3.5 trillion in foreign currency reserves, China certainly has the ability to prevent any unwanted falls in the yuan. A change in the tightly controlled exchange-rate mechanism means the yuan could continue to drop 2% a day, the AP reports. The IMF has welcomed the move as a way to give market forces more control of a currency that China wants to play a bigger role globally, but US lawmakers are skeptical. "For years, China has rigged the rules and played games with its currency," says Sen. Chuck Schumer, per the AP. "Rather than changing their ways, the Chinese government seems to be doubling down." Today's drop in the yuan led to sharp falls in world markets, which analysts believe were caused by fears that China's economy is in worse shape than previously thought, the Guardian reports.