Yuan Snaps Two-Day Gain on Concern China's Economy Is Slowing

The yuan halted a two-day rally, headed for its first quarterly drop since December 2009, on signs growth in the world’s second-biggest economy is slowing.

The currency has dropped 0.2 percent this quarter as the average earnings of 505 companies included in the Shanghai Composite Index trailed analysts’ estimates by 3.6 percent, according to data compiled by Bloomberg. A preliminary reading of a purchasing managers’ index for March, published by HSBC Holdings Plc and Markit Economics on March 22 ahead of final data due on April 1, showed a contraction.

“The slump in Chinese corporate profits was a blow to sentiment and triggered concerns over the economy,” said Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd. “There will be less appreciation pressure for the yuan if the economy slows further. Investors are waiting for the PMI data for a clearer picture on the economy.”

The yuan closed at 6.3060 per dollar in Shanghai, unchanged from yesterday, following a two-day advance of 0.13 percent, according to the China Foreign Exchange Trade System.

The People’s Bank of China lowered the yuan’s daily fixing for a second day, setting it 0.03 percent weaker at 6.2932. The currency is allowed to move as much as 0.5 percent on either side of the fixing.

In Hong Kong’s offshore market, the yuan slipped 0.02 percent to 6.3150. Twelve-month non-deliverable forwards gained 0.06 percent to 6.3355, a 0.5 percent discount to the onshore spot rate, according to data compiled by Bloomberg.

The yuan’s one-month implied volatility, a measure of exchange-rate swings used to price options, fell five basis points, or 0.05 percentage point, to 2.3 percent.

U.S. Treasury Secretary Timothy F. Geithner said yesterday he remains concerned about China allowing its currency to appreciate. China has “some ways to go” and the U.S. would like to see them go further, he said in prepared text of remarks to a House Appropriations subcommittee.