UPDATE 1-China's c.bank to maintain prudent monetary policy, ensure stable yuan levels

yuan levels@ (Adds details in paras 2, 3 and 6)

HONG KONG, Aug 10 (Reuters) - China's central bank said on Friday it would maintain its neutral and prudent monetary policy and enhance flexibility in yuan exchange rate levels, but global trade frictions remained an uncertainty for the global economy.

China, the world's second-largest economy, faces increasing economic headwinds due to an intensifying tit-for-tat trade dispute with the United States, rising corporate borrowing costs and sharp falls in Chinese stocks.

"Trade frictions, geopolitics and the normalization of monetary policies in major economies have increased uncertainties in global economic and financial markets," the People's Bank of China said.

It added in its second-quarter monetary policy implementation report that it would take measures to fend off systemic financial risks and maintain ample liquidity in the banking system.

"We will take further effective measures to carry out counter-cyclical adjustments when necessary and regulate macro-prudential policies to maintain stability in the yuan exchange rate levels," it said in the report, posted on its website www.pbc.gov.cn.

The central bank also said it would provide more financial support for small enterprises, which are a key driver of the economy and have been encountering financial difficulties as banks have become more cautious over credit quality. (Reporting by Lee Chyen Yee in Singapore and Twinnie Siu in Hong Kong; editing by Andrew Roche)