UPDATE 1-Foreign investors cut China's onshore bond holdings in August

Adds background

SHANGHAI, Sept 15 (Reuters) - Foreign holdings in China's onshore yuan bonds declined in August, official data showed on Friday, due to a still faltering economy and widening yield differentials with other economies like the United States.

Foreign institutions held 3.18 trillion yuan ($437.05 billion) in bonds traded on China's interbank market as of the end of August, the central bank's Shanghai head office said, down from 3.24 trillion yuan a month earlier.

The data shows that foreign holdings, which account for 2.5% of China's interbank bond market, fell for the second consecutive month after rising in May and June.

China's yuan has depreciated steadily since February as the economy's faltering post-pandemic recovery and a widening yield gap with other economies affected capital flows and trade. In August, the Chinese currency weakened roughly 1.6% against the dollar.

Its rapid decline has prompted authorities to roll out a slew of measures to contain the weakness.

China remains an outlier among global central banks, having cut interest rates to shore up a sputtering recovery while others have lifted them to tame inflation.

(Reporting by Shanghai ; Editing by Toby Chopra and Susan Fenton)

((meg.shen@thomsonreuters.com; 852-39525805;))