By Kelly Wang

SHANGHAI — China's yuan slipped again on Friday and was expected to extend its steady decline, providing Beijing with a buffer against punitive US trade tariffs and defying President Donald Trump's warning over the dollar's rise.

The yuan is kept in a narrow range each day by Beijing which, while allowing market forces some degree of play, is known to intervene -- in the past attracting US allegations of currency "manipulation".

After sliding recently to its lowest levels in a year as the Sino-US trade conflict heated up, the yuan fell on Friday past 6.80 to the dollar before recovering to around 6.78 later in the day, according to Bloomberg data.

The late rebound triggered market speculation that authorities had intervened to prevent the yuan falling too steeply, but analysts said China seems ok with further depreciation as the trade war rumbles on.

"The (yuan's) slide against the US dollar will substantially cushion the impact on Chinese exporters from the planned next round of US tariffs," Rajiv Biswas, chief Asia economist with IHS Markit, told AFP.

The world's two largest economies face a potential full-blown trade war after the United States earlier this month imposed 25 percent tariffs on $34 billion of Chinese products, drawing a tit-for-tat response from Beijing.

Washington has since threatened tariffs on another $200 billion in Chinese exports, prompting Beijing to vow further retaliation.

In excerpts of an interview with US television network CNBC aired Thursday, Trump said a strong dollar "puts us at a disadvantage", adding that the Chinese yuan "has been dropping like a rock".

Those comments, plus Trump's criticism of Federal Reserve interest rate hikes, caused the dollar to fall back in the US on Thursday.

But the yuan resumed its decline on Friday as the People's Bank of China (PBOC), which sets the currency's daily trading band, implemented the sharpest one-day lowering of that range in two years.

It set a central point of 6.7671 per dollar, nearly one percent lower than the previous day. China allows the yuan to move as much as two percent on either side of that daily point.

Jasper Lawler, head of research at London Capital Group, said China's response was "the starting of a currency war".

"It was only a month ago when China denied that they would start a currency war following Trump's action. A lot can change in a month under Trump," he said.

The yuan has fallen about 10 percent since mid-April.

- Further fall expected -

The yuan's depreciation stems from a confluence of factors including the trade war, expected slower Chinese economic growth, and speculation that Beijing will take fiscal stimulus steps, which tend to pressure a nation's currency.

Michael Every, financial markets analyst with Rabobank in Hong Kong, said the yuan could fall through seven to the dollar, a level not seen in years.

"The PBOC, in response to a genuine deceleration in the economy to come, and to the trade war, is letting some of the air out of the balloon," Every said.

"But there is a lot of air left," he added, saying the Chinese currency was already considered artificially strong.

A weaker currency costs China little -- for now.

"The central bank wants to use the currency movements to achieve internal and external economic balance. Bluntly speaking, they hope to use it to partially absorb the impact of the trade war," said David Qu, China economist for banking group ANZ.

The dollar has risen against a number of world currencies, fuelled in part by the Federal Reserve's recent rate hike, which tends to encourage overseas capital to slosh back into US assets. — AFP