China's central bank corsets yuan, onshore fx trade dwindles
* Yuan weaker, but at strongest level allowed by daily trading range
* Central bank uses midpoint fix to curb yuan strength
* Suspected intervention Friday aimed at providing yuan liquidityiating more PBOC liquidity
* Central bank wants market to adjust supply and demand on its own
SHANGHAI, Dec 3 (Reuters) - The yuan opened weaker against the dollar, but at the strongest level permitted by the official daily trading band, and stayed there for most of the morning amid dwindling trade as the central bank kept a lid on pressure for the yuan to firm.
The yuan opened at 6.2279 per dollar and stayed at that level through midday, slightly weaker than Friday's close of 6.2267.
The People's Bank of China (PBOC) set Monday's midpoint at 6.2908, slightly weaker than Friday's midpoint of 6.2892, ensuring the spot market would also weaken. The yuan can only rise or fall 1 percent from the central bank's base rate each day.
With the spot yuan having now hit its limit for 25 of the last 28 sessions, half-day volume slumped to only $489 million on Monday.
On Friday, daily turnover totaled $13.9 billion following a week in which it hovered between 4 and 6 billion.
Almost all of the volume on Friday was transacted in the last half hour of trade, raising suspicions that the PBOC had intervened to supply yuan liquidity after a week of anemic volumes, traders said.
The PBOC appears to choose to intervene only when market liquidity is very poor.
"The PBOC appears to have adopted a tactics of limited intervention, in order to wait and see if the market can digest dollar supply itself in coming weeks," said a dealer at a foreign bank in Shanghai.
"As the end of the year is near, companies typically need to balance their foreign exchange and yuan positions, and are thus likely to be forced to accept the PBOC's rate eventually."
While the PBOC uses its midpoint and sometimes its own price quotes to guide the spot rate, it typically conducts intervention via transactions with large state-owned banks, which then pass that liquidity through to the rest of the market. Both the PBOC's intraday quotes and its deals are invisible to other market participants.
The domestic market is flooded with foreign exchange as companies rush to sell their dollars after the yuan staged a dramatic comeback since late July.
The yuan now stands 1.1 percent up against the dollar for the year so far, rallying 2.7 percent from its late July low.
(Editing by Simon Cameron-Moore)