Yahoo Finance Chinese stocks, yuan bounce as next tariff steps watched
* Markets bounce despite threats of more trade friction
* Stocks on track for biggest two-day updraft since May
* Shanghai Stock Exchange urges buying, saying valuations are low
By John Ruwitch and Samuel Shen
SHANGHAI, July 9 (Reuters) - Chinese stocks and the yuan rose on Monday despite heightened trade tensions between Washington and Beijing after each imposed major tariffs on the others' goods last week and investors nervously await more policy action.
Chinese markets fell in the run-up to Friday's imposition of tariffs on $34 billion worth of Chinese goods, which was immediately matched by equivalent tariffs from China on U.S. products.
More retaliatory measures as promised by U.S. President Donald Trump could add to further pressure on China's capital markets, although the country's foreign reserves did not shrink in June - the yuan's worst month on record.
By the end of the morning trading session, the Shanghai Composite Index, which tracks shares traded on the Shanghai stock exchange, had risen 1.65 percent, while the blue-chip CSI300 Index was up about 2.06 percent.
Hong Kong's Hang Seng Index and a sub-index tracking mainland companies were both up as well.
If the momentum can be sustained in the afternoon, Chinese shares will be on track for their biggest two-day rise since early May, with the CSI300 up about 2.8 percent since Thursday's close and the Shanghai composite up around 2 percent.
Whether sentiment will be optimistic in coming trading sessions remains to be seen. Chinese stocks have tumbled about 15 percent since the start of the year and bearish signs persist.
Policymakers have tried to soothe investors by reassurances of solid fundamentals, and the Shanghai Stock Exchange exhorted investors to buy in an online post late on Sunday.
"Currently, the general level of valuations of Shanghai-listed companies is relatively low, presenting obvious value investment opportunities," it said.
"Indeed, several Shanghai-listed companies have disclosed plans for buy-backs for stake increases by shareholders, showing that the companies and shareholders are adamantly confident of listed companies' operations, profitability and growth prospects."
The yuan was trading at 6.6267 per dollar at 0334 GMT, up about 0.3 percent from its late close on Friday of 6.6489 yuan, after the dollar weakened following U.S. payrolls data.
China's foreign exchange reserves rose $1.51 billion in June to $3.112 trillion due to asset price changes, the State Administration of Foreign Exchange (SAFE) said on Monday.
"If economic fundamentals and Sino-U.S. relations have no additional changes, rapid and sizable one-way depreciation of the yuan against the dollar should have come to an end. The market will have some consolidation and try to figure out a bottom for the yuan," Lu Zhengwei, chief economist at Industrial Bank in Shanghai, wrote in a note.
"Markets will watch any new changes in the trade frictions between the United States and China, such as expansion in the size of tariff or deceleration." (Additional reporting by Winni Zhou and Liu Luoyan; Editing by Sam Holmes and Jacqueline Wong)
