THE yuan has sunk to its lowest level against the US dollar in almost 16 years as efforts by the #People's Bank of China (POBC) to curb its slide continued to be outweighed by downward pressure in currency markets.

The Chinese currency touched 7.3294 against the dollar at one point last Thursday, a level last seen in December 2007. It dipped even further during trading hours a day later, depreciating as far as 7.3510 to the greenback, reports Japan's Nikkei Asia.

The widening gap in interest rates between China and the US has been the main factor driving the slide, as the more-attractive returns offered by Treasurys lure money away from the Chinese market. The spread between American and Chinese 10-year government bonds stands at about 1.57 percentage point, its widest on a monthly basis since January 2007.

Along with Japan, China is one of the few major economies pursuing a loose monetary policy. Worsening economic sentiment has led the PBOC toward looser monetary policy, including cuts to key policy loan rates. With Europe and the US looking increasingly likely to keep rates high next year, conditions are bearish for its currency.

China's shrinking trade surplus also plays a role, as trading companies sell less foreign currency to buy yuan. The surplus fell for a fourth straight month in August amid a slump in exports.