After a sustained sell-off, China's yuan and stock markets recovered some ground on Friday, yet investors were grappling with some of their worst losses in years as a bitter Sino-US trade row threatened to rattle the world's second-biggest economy. In equities, the benchmark CSI300 Index leapt 2.57 percent, while the Shanghai Composite Index gained 2.2 percent, though they were both down around 8 percent for the month. In Hong Kong, the benchmark Hang Seng Index ended up 1.61 percent.
The yuan was set for its biggest monthly fall on record. Chinese stocks, on a downward spiral since late January, had their biggest day of gains in almost two years but still notched their worst monthly slide since January 2016.
The mounting losses highlighted the anxiety among investors as Washington and Beijing showed no signs of backing down from their tariff dispute.
The worry is that an extended selloff in stocks and the yuan could spark a bout of capital outflows, putting further strain on the economy and complicating policy making as authorities put up defences against the trade battle with the United States.
The yuan has shed about 3.3 percent of its value against the dollar in June, it's biggest fall since the market exchange rate was unified in 1994. It is off nearly 6 percent from its peak in late March.
On Friday, the yuan dipped to its lowest since mid-November 2017, but recovered to 6.6246 per dollar at official domestic close, roughly unchanged from the previous late night close.
Offshore, where the yuan trades more freely, the unit was weaker by about 0.02 percent than the onshore spot, at 6.6260 per dollar.
US President Donald Trump has shaken the world trade order by seeking to renegotiate the terms of some of the United States' trading relationships, in particular with China.
The US is targeting $34 billion of Chinese goods for tariffs to take effect on July 6, and has threatened tens of billions of dollars more for similar duties.
Chinese 10-year treasury futures for September delivery , the most traded contract, was up 0.34 percent. A fixed income portfolio manager said the sharp rise was a result of central bank promises of "ample" liquidity.
"The central bank is expected to step up efforts to calm investors and slow the pace of the yuan depreciation that has sparked risk aversion across regional markets, including a possible reintroduction of the counter-cyclical factor," Gao Qi, FX strategist at Scotiabank in Singapore, wrote in a note on Friday.
He expected "strong resistance" at 6.70 yuan per dollar.
Linus Yip, chief strategist at First Shanghai Securities, said the rebound in China and Hong Kong stocks was "technical", and the yuan's slide was hurting sentiment.
"Currency is the core, fundamental asset class. A weakening currency is a symptom of waning confidence and reduces risk appetite."
Some investors considered a tweak in wording in a report on the central bank's second-quarter monetary policy committee meeting, released on Thursday evening, as a sign that China's monetary stance might have switched.
Authorities had persistently vowed to keep the exchange rate "basically stable at a reasonable and balanced level", but this line disappeared from Thursday's statement.
Deng Haiqing, a visiting economics scholar at Renmin University, said the change of wording suggested the monetary policy stance has been "changed rather than fine-tuned".
Policymakers were undoubtedly on guard for signs of a repeat of the 2015 stock markets rout that was exacerbated by bungled rescue attempts.
Sectors and stocks that were exposed to the depreciating yuan have been hit hard this month.
Real estate was down more than 4 percent and had its fifth straight month of losses. The transport sector index, whose components include many leading airlines, tumbled around 9 percent this month, its steepest monthly drop since January 2016.
Flag carrier Air China has slumped close to 20 percent this month, its fourth straight month of losses.
Traders said the People's Bank of China (PBOC) has set the daily midpoint stronger than models predicted in recent days, and interpreted it as an attempt to warn the market of making a "one-way bet" on depreciation.
A trader at a regional bank in Shanghai who declined to be named said there had been some "filtering" of the midpoint fixing, which is set by the central bank each morning, in an apparent bid to keep the yuan from falling too sharply.
"It is too early to say whether the counter-cyclical factor has been revived," the trader said.
In May 2017, the PBOC added a secret "counter-cyclical factor" to its formula for calculating the midpoint, which helped put a floor under a falling yuan. It effectively removed the x-factor at the start of this year as the yuan rebounded. The yuan has held up against other emerging market currencies in the region as well as a basket of currencies the authorities use to measure its value.