THE yuan rallied to a 4-1/2-month high against the U.S. dollar Friday while mainland and Hong Kong stock markets soared on reports the United States and China had agreed to reduce existing tariffs and delay ones set to take effect yesterday.

The United States and China cooled their trade spat Friday, announcing a “phase one” agreement that reduces some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods.

China has agreed to import at least US$200 billion in additional U.S. goods and services over the next two years on top of the amount it purchased in 2017, the top U.S. trade negotiator said Friday. In return, the United States would suspend tariffs on Chinese goods due to go into effect yesterday and reduce others, U.S. officials said.

Investors were emboldened enough to bet on a positive outcome to the talks earlier Friday, lifting the benchmark Shanghai Composite Index 1.78 percent to 2,967.68, its biggest daily gain in more than 2-1/2 months and the highest close since Nov. 7.

The blue-chip CSI300 index had its best day since Aug. 19, closing up 1.98 percent at 3,968.22, the highest since Nov. 8.

Shares on the smaller Shenzhen bourse rose 1.48 percent.

Zhang Yanbing, an analyst with Zheshang Securities, said the possibility of a trade deal offered a boost to the A-share market. He said if the benchmark Shanghai index manages to rise past 3,000 points as sentiment improves, many investors who had previously been bearish would buy shares.

Foreign investors were net purchasers of A shares via the Stock Connect linking mainland and Hong Kong markets for the 22th straight session, the longest buying stretch in 2019.

Northbound inflows via the Stock Connect have topped 300 billion yuan (US$43 billion) so far this year.

Hong Kong’s Hang Seng index finished up 2.57 percent, its strongest daily performance since Sept. 4 and at its highest close in more than five weeks. The China Enterprises Index rose 2.1 percent.

After opening at 6.9595 per U.S. dollar Friday morning, the onshore spot yuan strengthened as much as 1.02 percent from its late-night close above 7 to reach 6.9570 per dollar, its firmest since Aug. 2.

The currency finished its onshore trading session at 6.9839 per dollar, also its strongest close since Aug. 2. (SD-Agencies)