The Chinese yuan halted a three-day slide after the central bank soothed market sentiments, reversing short but sharp declines triggered by a foreign exchange (forex) policy change. China’s Shanghai Composite Index added 0.5 percent to 3,972.40.

“It is very possible that we could see a 10 to 15% drop in the exchange rate against the U.S. dollar in the next week or two”, said Duncan Innes-Ker of The Economist Intelligence Unit in a research note.

Chinese banks were also rumoured to be supporting the yuan by buying up the currency and selling dollars. The People’s Bank of China “fixed” the rate of the yuan vs. the dollar down another 1% Thursday, which was smaller than Tuesday’s 1.9% devaluation and Wednesday’s 1.6% reduction, and close to last night’s close. It’s allowing market forces more influence over the currency, which, given weak recent data, “conveniently… means a weaker” yuan.

The market entered negative territory in the morning on fears the prolonged yuan depreciation would destabilize the economy. The yuan’s weakness won’t fix that overnight.

Beijing is pushing for the yuan to become one of the reserve currencies in the worldwide Monetary Fund’s SDR (special drawing rights) group.

Beijing’s moves eased concerns a cheaper yuan could trigger a “currency war”, or a competition among the world’s biggest economies to cheapen their own currencies to seek a competitive edge. “The central bank is capable of keeping the renminbi stable”. Southeast Asian markets finished mostly higher.

“The central bank, if necessary, is fully capable of stabilising the exchange rate through direct intervention in the foreign exchange market to avoid (the) herd mentality resulting in irrational movements of the rate”, Massachusetts was quoted as saying by the official Xinhua news agency.

The devaluation likely matters more for the U.S. inflation outlook than the country’s growth prospects because American businesses import much more from China than they export to it, said Stephen Freedman, senior investment strategist at UBS Wealth Management Research.

Beijing strictly controls the yuan, allowing it to trade within a range of 2 percent above or below the reference point, which it sets daily. The currency was down 0.8 percent at midmorning but that narrowed to a 0.2 percent decline after the comments, compared to Wednesday’s closing price.

Emerging market currencies including the Indonesian rupiah, Philippine peso and South Korean won rose slightly against the dollar after China yesterday trimmed its yuan reference rate 1.1 percent.