China weakens yuan following last week's jump

China`s yuan resumed its downward slide Monday as officials weakened its value against the dollar by the most in six months, having hiked it at the end of last week.

The People’s Bank of China set the reference rate of the yuan -- also known as the renminbi -- at 6.9262 to the dollar, down 0.87 percent from Friday’s fixing, according to data from the Foreign Exchange Trade System.

It marked the biggest single-day drop since June and comes right after Friday saw the biggest jump of the fixing -- by 0.92 percent -- since 2005. 

China only allows the tightly controlled yuan to rise or fall two percent on either side of the daily fix, to prevent volatility in the currency, which is near its lowest levels in eight years.

Michael Every, Robobank Hong Kong’s head of Financial Markets Research of Asia-Pacific, told AFP Monday’s drop “just shows everything last week ultimately was for nothing”.

“Lots of people are expecting weaker (yuan)... Today’s fix just underlines that said weakness is coming, and soon.”

The falling currency shaved China`s foreign exchange reserves by a tenth last year, official data showed over the weekend. 

In December the country`s stockpile of foreign currency -- the world`s largest -- shrank by $41.1 billion to $3.01 trillion, the State Administration of Foreign Exchange (SAFE) said. 

The central bank has spent heavily to stabilise the yuan in the face of surging capital outflows and a strengthening dollar. The unit fell seven percent against the greenback last year. 

China said last month it would almost double the number of foreign currencies it uses to determine the yuan`s official value, thereby diluting the dollar`s role, and has imposed a range of measures to curb capital flight abroad.