HONG KONG • China's central bank set its yuan fixing at weaker than 7 per US dollar for the first time in more than a decade.

The People's Bank of China (PBOC) set its daily reference rate at 7.0039 per US dollar.

The yuan breached that level this week for the first time since May 2008, but the fixing previously had not. The offshore yuan rose 0.1 per cent.

China's daily fixing is a closely watched event. A weak reference rate on Monday helped to trigger the biggest loss in the yuan since 2015 and stoked fears of a global currency war.

While the PBOC has since taken steps to limit declines in the yuan, traders remain jumpy about potential escalation in the trade war with the United States.

The US this week labelled China a currency manipulator, which may prompt counteractive measures.

China's fixing is published every trading day at 9.15am, after a group of 14 lenders submit their rates. The yuan can then move 2 per cent in either direction.

The rate takes into account factors such as the previous day's close, the yuan's move against a currency basket and moves in major exchange rates.

The mechanism has been used to manage volatility since China removed the yuan's peg to the greenback in 2005. Until at least 2015, traders could not offer prices that diverged by more than the allowed range.

The yuan last tested the band in February 2015, when it closed 1.99 per cent weaker than the reference rate.

BLOOMBERG

Correction note: The headline in a previous version of this report said China fixes yuan below 7 per USD. It should be above 7 per USD. We are sorry for the error