SHANGHAI/HONG KONG - China's yuan eased against the dollar on Monday while stocks gained, after Beijing cut the amount of cash banks must keep on reserve to bolster the economy against trade tariffs and sluggish domestic demand.

The onshore yuan CNY=CFXS slipped 0.13% to 7.1242 per dollar as of 0358 GMT, while the offshore yuan CNH=D3 shed 0.22% to 7.1231 per dollar.

Traders said the People's Bank of China appears to have used the daily fixing to brake the yuan's decline once again. It set the midpoint - at which the spot rate can trade 2% on either side - at 7.0851 per dollar, stronger than Reuters' estimate of 7.094.

The yuan had its first weekly gain in three weeks on Friday, buoyed by hopes Beijing and Washington would find a way to de-escalate tensions after trade negotiators from both sides agreed to meet in Washington in October.

"There's not a lot of direction in the yuan right now. It depends on the trade war. It also depends on how much the Fed will cut," said a trader with a Chinese bank in Shanghai.

"They (PBOC) won't let the yuan fall too much, because they know the U.S. will keep an eye on the exchange rate. It is likely to be steady," another trader with a foreign bank in Shanghai said.

The benchmark CSI300 index .CSI300 gained as much as 0.9% to a near five-month high, while the Shanghai Composite Index .SSEC also added 0.9% at one point, though both indexes pared their early gains as investors locked in profits. Ten-year treasury futures CFTZ9 slipped 0.1%.

The cut in banks' reserve requirements was more of a precaution against the negative impact on China's macro economy from further deterioration in the Sino-U.S. trade dispute, Ma Tao, analyst with Caitong Securities, noted in a report.

For the short term, investors could take profit as the market is expected to get a boost from Beijing's efforts to stabilise the economy, Ma said.

The A-share market has remained resilient despite China and the United States slapping fresh tariffs on each other's goods, he added.

China's exports unexpectedly fell in August as shipments to the United States slowed sharply, pointing to further weakness in the world's second-largest economy and underlining a pressing need for more stimulus as the Sino-U.S. trade war escalates.

Beijing is widely expected to announce more support measures to avert the risk of a sharper economic slowdown, including modest cuts in various lending rates next week and more RRR cuts, possibly in the fourth quarter.

But China's central bank surprised the market by not rolling over medium-term lending facility (MLF) loans on Monday, sending a signal it doesn't want to flood the banking system with liquidity, after Friday's cut in banks' required reserves.

The central bank had been expected to issue one-year MLF loans at a lower rate on Monday, as a batch of 176.5 billion yuan ($24.77 billion) worth of such loans was due to mature on the day.

But the PBOC said it did not conduct MLF operations, which surprised traders and analysts

Xu Wenyu, analyst at Huatai Futures, said the central bank may not want to be seen as overly aggressive in its monetary easing, increasing liquidity through quantity and price adjustments.

"The central bank may want to observe whether its easing policies can be transmitted smoothly. If the economy stabilises in the third or fourth quarter, there's no need for too much easing."

Still, most analysts expect the PBOC to cut MLF rates later this month to help lower lending rates, especially as the U.S. Federal Reserve is widely expected to cut interest rates. RRR cuts have had a big impact on money market rates but not on corporate lending rates.

TRADE IN FOCUS

Sino-U.S. trade tensions have eased somewhat as the two countries agreed to resume talks in October, though there were doubts if any material progress would be made this time.

China and the United States on Thursday agreed to hold high-level talks in early October in Washington, cheering investors hoping for a trade war thaw as new U.S. tariffs on Chinese consumer goods chip away at global growth.

White House economic adviser Larry Kudlow said on Friday the United States wants "near term" results from trade talks in September and October but cautioned that the trade conflict could take years to resolve. 

In confirming talks between high-level U.S. and Chinese officials in early October, Kudlow declined to predict outcomes or a specific timeline for reaching any agreements.

In Hong Kong, stocks pared gains to trade slightly higher as there was pressure amid the political protests.

At 5:30 GMT, the Hang Seng index .HSI rose 0.1%, to 26,720.46, while the China Enterprises Index .HSCE gained 0.1%, to 10,444.33.

Hong Kong police fired tear gas to disperse protesters in the upmarket Causeway Bay shopping district on Sunday, after demonstrators had rallied at the U.S. Consulate calling for help in bringing democracy to the Chinese-ruled city.

Chinese state media on Monday said Hong Kong was an inseparable part of China and any form of secessionism "will be crushed". urn:newsml:reuters.com:*:nL3N26001N

(Additional reporting by Samuel Shen Editing by Jacqueline Wong) ((luoyan.liu@thomsonreuters.com; Reuters Messaging: luoyan.liu.thomsonreuters.com@reuters.net))