* Chinese central bank to keep yuan stable
* Currency markets relieved with Australian dollar leading gains
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
LONDON, July 3 (Reuters) - The euro and the Australian dollar led broad gains in currencies on Tuesday after the Chinese central bank moved to calm nervous foreign exchange markets following a fall in the renminbi below a key psychological level.
In a statement on the People Bank of China’s website, Governor Yi Gang said the central bank was closely watching fluctuations in the foreign exchange market and would seek to keep the yuan at a stable and reasonable level.
Protracted weakness in the Chinese currency raises the prospects of capital outflows and a slowdown in the world’s second-biggest economy, creating a new source of concern for currency markets grappling with rising threats to global trade.
The central bank’s comments snapped a 10-day losing streak in the value of the renminbi which has seen it lose nearly 4 percent against a trade-weighted basket and nearly 4.5 percent against the dollar over that period.
The weakness sent shock waves though global markets on concerns Beijing may be engineering another devaluation of its currency in a growing trade dispute with the United States.
“Though today’s moves by Beijing has restored some calm in markets, the broader picture still remains worrisome and unless we see a marked weakening in U.S. data, the broader trend of yuan weakness seems in place,” said Georgette Boele, a senior currency strategist at ABN Amro Bank in Netherlands.
The yuan fell to 6.7204 per dollar, its weakest since Aug. 7, 2017, before recovering to trade at 6.6466 per dollar.
The Australian dollar extended gains and rose 0.74 percent on the day at 0.7384 per dollar, while the euro rose 0.4 percent to an intraday high of $1.1673 before trimming some gains.
The dollar weakened against a basket of rival currencies after notching up three consecutive months of gains as investors wait for minutes of the U.S. Federal Reserve’s June meeting and jobs data that should confirm whether policymakers will raise interest rates twice this year.
The Fed will release minutes of its June meeting on Thursday, and investors will parse the data and the statements to gauge whether it is still on track to raise interest rates twice more this year. Monthly payrolls data follow on Friday.
The euro was supported after Germany’s coalition settled a row over migration that had threatened to topple Chancellor Angela Merkel’s government. The single currency was 0.1 percent higher at $1.1650.
Despite the trade tensions overhanging the markets, analysts remain bullish on the dollar in the near term, citing that an escalation in trade protectionism in non-U.S. countries where economic growth is spluttering.
“Normalisation of market volatility broadly supports the dollar against its major rivals except the yen, reinforcing the pattern we expect under a scenario of increased trade protectionism,” Bank of America Merrill Lynch strategists. They expect euro-dollar to fall to $1.14 by end-2018.
Valuations also remain supportive, with the dollar’s trade-weighted basket still below long-term averages.
Elsewhere, the Swedish crown extended gains against the dollar and the euro after the central bank reiterated that it would raise repo rates towards the end of the year.
The crown rose 1.5 percent against the dollar and 1.2 percent against the euro at 8.85 crowns per dollar and 10.31 crowns per euro respectively.
Reporting by Saikat Chatterjee; Editing by Jane Merriman
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