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(CNN Business) —  

Stocks in Asia clawed back some of their losses and US stock futures rebounded on Tuesday after China took steps to shore up the falling yuan.

Major Asian markets still ended Tuesday in the red: Hong Kong’s Hang Seng (HSI) Index finished down 0.7%, while Japan’s Nikkei closed 0.7% lower. China’s Shanghai Composite Index lost 1.6%. South Korea’s Kospi fell 1.5%. Taiwan’s Taiex settled lower by 0.3%. But they recovered significantly from earlier in the day, when all of those indexes fell by more than 2%.

In the United States, where stocks suffered a major sell-off on Monday, futures were higher.

The rebound came as China’s yuan jumped Tuesday, recouping some of its previous declines. Monday’s market turmoil began when the Chinese government let the yuan fall below its 7-to-1 ratio with the US dollar for the first time in a decade. The Trump administration later labeled China a “currency manipulator.”

The People’s Bank of China still fixed the currency at its weakest level in 11 years Tuesday. The central bank’s cut to the yuan’s reference rate — a “band” it sets every day to curb how far up or down the yuan’s value can move — was also the deepest in more than a year.

But the reference rate was still above the psychologically important benchmark of 7 to the dollar. And China’s central bank on Tuesday took additional steps to shore up its currency, including plans to issue 30 billion yuan worth of central bank bills in Hong Kong next week. The bills drain yuan out of the market and push up interest rates, making it more expensive for investors to bet on a weaker currency.

“The bill sales in Hong Kong are part of regular issuance, but the amount is larger than needed to simply replace maturing bills, so should provide some boost to short term Chinese rates, and thereby to the yuan,” said Robert Carnell, chief economist and head of research in Asia Pacific at ING.

In mainland China, the yuan is changing hands at about 7.03 to the dollar, strengthening from the previous close of 7.05. Outside of China, where the yuan trades more freely, one dollar buys about 7.07 yuan, compared with 7.10 in the previous day.

China said Monday’s devaluation reflected pressure on the exchange rate stemming from the US decision last week to impose new tariffs on Chinese exports.

Yi Gang, governor of the Chinese central bank, said in a statement Monday night that China would “not engage in competitive devaluation, and not use the exchange rate for competitive purposes and not use the exchange rate as a tool to deal with external disturbances such as trade disputes.”

The next move is now up to the United States, Carnell said.

“We now have to wait to see how the US President views today’s move, as it looks like he is personally taking control of US trade policy,” Carnell said. He added the United States could respond by increasing the 10% tariff that Trump recently announced on $300 billion worth of Chinese goods to 25% — a further escalation of an already intense trade war.

Analysts fear the United States and China may be headed for a currency war.

“Continued yuan depreciation should be expected, albeit in a staggered pace. Beijing is likely to tolerate further weakness and we could see another 5% before the end of the year,” said Edward Moya, New York-based senior market analyst at Oanda. “The US is likely to counter the breach of the critical 7 level to the dollar with verbal intervention. Currency wars are taking center stage. “

Here are some of the other big moves on Asian markets at 6 p.m. Hong Kong time.

  • Sunny Optical Technology and AAC Technologies, which supply components to Chinese telecoms giant Huawei, dropped 1.8% and 2.2% respectively.
  • HSBC shares that are listed in Hong Kong continued their decline, down 1.2% on Tuesday. The British banking giant dropped 1.9% on Monday after it announced John Flint will step down as chief executive.