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China is among the hardest hit by new tariffs

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Risk-off mood triggers declines in Chinese assets

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Investors eye PBOC moves amid trade tension

(Updates with closing prices)

By Jiaxing Li and Rae Wee

HONG KONG, April 3 (Reuters) - China's yuan dropped to

its lowest level in seven weeks and stock markets slumped on

Thursday after U.S. President Donald Trump unveiled a sweeping

set of reciprocal tariffs that were particularly heavy on China

and its main trading partners.

While investors had been bracing for these tariffs over the

past week, Washington's latest punitive measures turned out to

be more aggressive than expected.

Chinese imports will be hit with tariffs of 34%, on top of

the 20% Trump previously imposed, bringing the total new levy to

54%. Countries in China's supply chain were hardest hit, with

Vietnam, Cambodia and Laos getting slapped with tariffs between

46% and 49% respectively.

China's blue-chip CSI 300 Index fell 0.6% to a

two-month low, while Hong Kong's Hang Seng Index fell

1.5%.

"The tariff hike was larger than most market participants

were expecting, so the initial market reaction is likely going

to be a continuation of risk-off sentiment," said Lynn Song,

chief economist for Greater China at ING.

While immediate yuan depreciation pressure is likely, Song

did not foresee an intentional devaluation as that would lead to

more tariffs and undermine currency stability benefits.

YUAN SUPPORT

Analysts said they are scrutinising China's intent to defend

the yuan, to indicate how keen it is to both contain contagion

in emerging markets and negotiate with Trump.

China's onshore yuan ended the domestic session

at 7.3043 per dollar, the weakest close since February 12. The

offshore yuan hit a fresh one-month low overnight.

China's major state-owned banks were seen buying yuan, and

the People's Bank of China (PBOC) set the midpoint rate, around

which it allows the yuan to trade, above market estimates, in a

sign it aims to contain depreciation.

The currency has already given up most of its year-to-date

gains over the past month, despite efforts by the PBOC to keep

it steady through changes to its daily benchmarks.

Trump also signed an order to close a trade loophole used to

ship low-value packages - valued at $800 or less - duty-free

from China, known as "de minimis". The order covers goods from

China and Hong Kong, and will take effect on May 2, according to

the White House.

Expectations that monetary easing will follow drove down

Chinese bond yields on Thursday.

Analysts said Trump and China might now be closer to

starting trade negotiations, but foreign investors will for now

stay away from a market they have poured billions into, chasing

a rally spurred by Chinese AI startup DeepSeek.

"China's recent tech re-rating is mostly insulated from

tariffs," said Eugene Hsiao, head of China equity strategy at

Macquarie Capital, adding that concerns centre mostly around the

global risk-off sentiment which could limit further inflows.

The trade war could also complicate Beijing's plan to spur

economic growth, targeted at roughly 5% in 2025.