The yuan weakened for a fifth day, the longest losing streak in a year, as slowing economic growth in China and Japan prompted investors to avoid emerging-market assets and favor the dollar. China’s industrial output climbed 13.4 percent from a year earlier in July, the smallest gain in 11 months, and bank lending increased by the least since March, government reports released in Beijing showed last week. Japan’s gross domestic product rose an annualized 0.4 percent in the three months ended June 30 from a revised 4.4 percent expansion in the first quarter, the Cabinet Office said today in Tokyo. Local bonds fell, halting a three-day advance. “Safety-seeking sentiment is very strong in the market now as major economies all showed slowdown signs,” said Liu Xin, an analyst at the Hong Kong branch of Bank of Communications Ltd., China’s fifth-biggest lender. “The weaker yuan-dollar rate was obviously caused by a stronger dollar as the yuan has been floating against a currency basket.” The yuan declined 0.1 percent to 6.8033 versus the greenback as of 1:17 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency’s five-day decline, the worst performance since Aug. 12 last year, trimmed gains to 0.3 percent since the central bank ended a two-year peg to the dollar on June 19. The monetary authority said it would manage the yuan against a basket of currencies. China should continue to carry out its pledge on currency reform and increase the yuan’s flexibility to accelerate economic restructuring, Xia Bin, a government economist and an adviser to the central bank, said in an interview with the People’s Daily Overseas Edition Aug. 13. More flexibility will also help reduce appreciation expectations, he said. Lending Slows Chinese banks extended 532.8 billion yuan ($78.3 billion) of new local-currency loans last month, compared with 603.4 billion yuan in June, the central bank data showed last week. M2, the broadest measure of money supply, grew 17.6 percent from a year earlier, easing from 18.5 percent in the prior month. Twelve-month non-deliverable forwards were little changed at 6.6870, reflecting bets the currency will strengthen 1.7 percent from the spot rate in a year. The People’s Bank of China set the yuan’s reference rate at 6.8064, the weakest level since June 24. The currency is allowed to trade as much as 0.5 percent either side of the daily fixing. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major trading partners, last week rose 3.2 percent, the most in 14 weeks, to 82.948 on Aug. 13. It dropped 0.3 percent today. Euro, Technicals A technical gauge traders use to predict price movements signaled a rally in the U.S. currency against the yuan may stall, while the dollar dropped 0.3 percent versus the euro today after rising 4.1 percent last week, the biggest advance since May 7. The dollar’s 14-day relative-strength index climbed to 71 today, breaching the level of 70 that indicates gains may reverse. China’s currency halted a five-day winning streak against the euro. “The yuan has strengthened quite a bit against the euro in the past week but Chinese authorities don’t want it to continue to strengthen due to concern about the economy,” said Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole CIB. “All it does is keep dollar- yuan low to maintain stability in the yuan.” Bonds Decline China’s government bonds dropped after a two-week advance on speculation some investors sold debt because gains were excessive. Interest-rate swaps extended last week’s decline. The 10-year yield dropped seven basis points in the last two weeks to 3.24 percent, according to an index compiled by Chinabond, the nation’s largest debt-clearing house. The rate declined to a one-year low of 3.17 percent on July 14. A basis point is 0.01 percentage point. “Some investors sold debt for profit-taking as they don’t see much room for further gains,” said Chen Jianbo, a Beijing- based fixed-income analyst at BOC International Holdings, the investment banking arm of Bank of China Ltd. “Slower growth was good for bonds, which has now been priced in.” The yield on the 2.52 percent note due in July 2015 climbed two basis points, or 0.02 percentage point, to 2.6 percent, and the price of the security lost 0.08 per 100 yuan face amount to 99.64, according to the National Interbank Funding Center. Five-year interest-rate swap contracts, in which the floating seven-day repurchase rate is exchanged for a fixed payment, slid two basis points to 2.7 percent, according to data compiled by Bloomberg. The repo rate rose three basis points to 1.78 percent. --Belinda Cao. Editors: Sandy Hendry, Simon Harvey To contact Bloomberg News staff for this story: Belinda Cao in Beijing at +86-10-6649-7570 or lcao4@bloomberg.net

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