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EM ASIA FX-Tumble by China's yuan sends most Asian currencies into a tailspin

Nikhil Nainan

* U.S.-China trade war escalates, making investors seek safety

* Markets worry whether currency is the trade dispute's new front

* South Korea's won badly affected amid spat with Japan

(Adds context on yuan falling below key level, updates prices) Aug 5 (Reuters) - Currencies across Asia suffered sharp losses on Monday as China's yuan crossed the 7 per dollar level for the first time in over a decade, following escalation of the Sino-U.S. trade war to new heights. The yuan sank nearly 1.5% to 7.042, breaching the key level for the first time since the global financial crisis in 2008. The closely-managed currency's move lower sets the stage potentially for a new front in the trade dispute. The People's Bank of China "has effectively weaponised the exchange rate, even if it is not proactively weakening the currency with direct FX intervention," Julian Evans-Pritchard, Capital Economics senior China economist said in a note. The build-up of hostilities comes after U.S. President Donald Trump late last week declared he would slap 10% tariffs on $300 billion in Chinese imports, ending a month-long trade truce. "We had anticipated that the PBOC would eventually devalue the currency in response to trade tensions but hadn't expected it to come quite this soon," Evans-Pritchard added. Uncertainty engulfed Asian markets in general on Monday, with flows moving to safer bets, with the Japanese yen strengthening 0.6%. Chris Weston, head of research at Pepperstone brokerage in Australia, said in a note the market "really does not need worries about a capital flight in China at this point in time and a subsequent tightening of financial conditions in the Chinese economy." Trade-reliant economies such as South Korea took major hits on Monday. The won touched a three-year low of 1,218.3 per dollar, while the Taiwan dollar dropped 0.7%. Also weighing on the won is its diplomatic spat with Japan, which tightened controls in July on exports to South Korea. This escalated a row over wartime forced laborers and sparking a boycott by South Korean consumers of Japanese products and services. "The South Korean won is least favored because of its country's spat with Japan over the latter's export ban," DBS said in a note. India's rupee also fell to its weakest level since early March, ahead of a central bank meeting on Wednesday, at which DBS expects a 25 basis point rate cut. Indonesia reported its weakest economic growth in two years in April-June, though the 5.05% figure matched market forecasts and did not move the rupiah, which was 0.7% lower at 14,270 to the dollar for the day. The Thai and Philippine central banks have policy meetings this week amid a global easing wave as growth falters. Thailand's baht, the strongest Asian currency this year, was marginally lower while the Philippine peso dropped 0.4% to 51.84 a dollar.

CURRENCIES VS U.S. DOLLAR Change on the day at 0459 GMT

Currency Latest bid Previous day Pct MoveJapan yen 106.020 106.58 +0.53Sing dlr 1.382 1.3765 -0.41Taiwan dlr 31.609 31.376 -0.74Korean won 1214.000 1198 -1.32Baht 30.840 30.8 -0.13Peso 51.840 51.64 -0.39Rupiah 14270.000 14175 -0.67Rupee 70.425 69.59 -1.19Ringgit 4.173 4.155 -0.43Yuan 7.029 6.9420 -1.24

Change so far in 2019

Currency Latest bid End 2018 Pct MoveJapan yen 106.020 109.56 +3.34Sing dlr 1.382 1.3627 -1.41Taiwan dlr 31.609 30.733 -2.77Korean won 1214.000 1115.70 -8.10Baht 30.840 32.55 +5.54Peso 51.840 52.47 +1.22Rupiah 14270.000 14375 +0.74Rupee 70.425 69.77 -0.93Ringgit 4.173 4.1300 -1.03Yuan 7.029 6.8730 -2.22

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Richard Borsuk)