By Marc Jones
LONDON (Reuters) - The dollar climbed to a one-year high but stocks wobbled and metal markets buckled badly on Thursday, as signs that China was resorting to credit-fuelled stimulus again helped drive down its currency.
Asian shares had struggled following the moves and most of Europe was in the red as traders there banked some of the gains that had hoisted the STOXX 600, DAX and France's CAC40 to one-month highs. [.EU]
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Wall Street was also expected to ease off five-month highs [.N], while Britain's pound was below $1.30 for the first time in 10 months as mixed retail sales figures added to constant political turmoil and Wednesday's weak inflation data.
The yen at 113 per dollar, euro at $1.16 and most other European currencies were all weaker too. Instead of politics, though, they fell because they just couldn't fend off the dollar's latest charge. [FRX/]
"Sentiment right now is still very much in favour of buying the dollar," said Crédit Agricole FX strategist Manuel Oliveri.
"It is positively correlated with risk appetite, and risk appetite remains supported by the U.S. earnings season, and there is a very strong notion among clients that there is further room for improvement."
That appetite had got its latest boost as S&P 500 rose to its highest in more than five months on Wednesday, the Dow Jones climbed for a fifth session and the "FAANGs" group of big tech giants hit fresh all-time highs. [.N]
Ongoing trade jitters and developments in China, however, made Asia a different picture.
Sources told Reuters that China's central bank plans to motivate banks to expand lending to companies, a proposal that points to another shot of stimulus.
China's foreign-exchange regulator, meanwhile, said it would keep currency markets stable amid intensifying trade frictions with the United States.
The worries had pummeled the yuan to a one-year low of 6.7800 per dollar and 6.7427 in offshore and onshore trade. [.SS]
The technology-heavy Shenzhen Composite stocks index shed 1.0 percent and Shanghai Composite index fell 0.6 percent to head back towards a 1 1/2-year low it had set earlier this month. [.SS]
"Market players are looking at both the onshore and offshore exchange rate to determine whether or not the People's Bank of China is intentionally allowing a weaker yuan," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
"If the difference between the two markets becomes too big, that could mean the PBOC is intervening in the market."
She noted that although the spread between offshore and onshore yuan had widened recently, it was still far from the levels it reached during the Chinese financial market shock in 2015, when the central bank was seen intervening heavily.
To view a graphic on Rise of the dollar in trade-weighted terms, click: https://reut.rs/2L8rLag
White House trade adviser Peter Navarro told CNBC on Thursday that Donald Trump's trade strategy with China was not as disruptive as many describe.
"We got two economies that add up to around $30 trillion in annual GDP. The amount of trade we're affecting with the tariffs is a rounding error compared to that," he said during an interview at the White House.
Investors remain unconvinced. Metals markets were also in the firing line again. China is the world's biggest consumer of most industrial metals so worries about its economy can have a serious impact.
Copper and nickel were both down over 2 percent on London's metal exchange. Zinc was down more than 3 percent and lead down 2.5 percent. [MET/L]
Oil and gold also dropped again. Gold hit another one-year low of $1,215 per ounce, while Brent and WTI U.S. crude futures were down 80 and 53 cents at $72.10 and $68.20 a barrel respectively.
Brent has fallen almost 9 percent from last week's high above $79 on emerging evidence of higher production from Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries as well as Russia and the United States.
"The outlook remains negative," said Robin Bieber, technical analyst at London brokerage PVM Oil Associates.
In fixed-income markets, expectation that the United States would continue to raise interest rates this year lifted its two-year bond yields, which move inversely to the bond's price, to a new decade high. [/US]
Italy's short-dated yields tumbled to a one-month low with traders citing reports that the country's new prime minister has said that its euro membership was irreversible. That helped ease worries caused anti-euro rhetoric during its recent election campaign. [GVD/EUR]
(Additional reporting by Christopher Johnson in London and Tomo Uetake in Tokyo; editing by Toby Chopra, Larry King)