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China global trade settled in yuan drops to more than three-year lows: StanChart

HONG KONG (Reuters) - Cross-border trade settled in the Chinese currency plunged to the lowest levels in more than three years in December as stricter capital controls and fears of further weakness in the yuan dampened global interest in the currency.

The decline could mark a major setback for Beijing, which has tried to foster greater usage of the yuan in cross-border trade to expand its global clout.

The yuan, also known as the renminbi, fell 6.6 percent against the dollar last year, its worst annual drop since 1994, reducing its attractiveness to both trading companies and investors.

While the yuan has steadied early this year due to dollar weakness and tighter controls on moving funds out of China, currency strategists polled by Reuters expect it will resume its descent soon, especially if the U.S. continues to raise interest rates, which would trigger fresh capital outflows.

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Renminbi trade settlement accounted for only 11.5 percent of China’s total goods trade in December, the lowest since September 2013, and down from over 28 percent a year earlier.

That contributed to a general decline in an index tracking offshore yuan usage across various metrics compiled by Standard Chartered Bank.

"In addition to stricter scrutiny of cross-border flows and depreciation worries, less effective liquidity management and hedging tools probably weighed on corporates’ sentiment," analysts at the bank wrote in a note.

(Reporting by Saikat Chatterjee; Editing by Kim Coghill)