Yuan muscles higher as China c.bank's dollar buying dies down

* Yuan bounces back to close at 6.2329/dlr

* C.bank no longer seen buying dollars aggressively

* Corporate order flow still favours yuan

* Swap points recover after panic selling on Wednesday

(Updates to close)

SHANGHAI, Dec 13 (Reuters) - China's yuan closed sharply higher on Thursday, rebounding from an eight-week low touched a day earlier, as the suspected aggressive dollar by the central bank died down, leaving corporates scrambling for other sources of yuan.

Spot yuan closed at 6.2329 versus the dollar, a gain of 0.3 percent over Wednesday's close of 6.2518. The yuan had touched an eight-week intraday low of 6.2588 on Wednesday afternoon.

The People's Bank of China (PBOC) signalled its desire for stability by setting its daily midpoint nearly flat at 6.2887 compared with Wednesday's fix of 6.2883. The PBOC allows the yuan to rise or fall by no more than 1 percent from the midpoint it sets each morning.

Traders say the Federal Reserve's surprise announcement of a new round of quantitative easing had little impact on the market on Thursday, but they say the yuan could strengthen in line with other non-dollar currencies as the Fed's bond buying runs its course.

Earlier this week, aggressive dollar buying by major state banks, almost certainly at the behest of the central bank, restored liquidity to the market. For more than a month, the market had been deadlocked by the lack of dollar bids, which resulted in the yuan remaining glued to the strongest level permitted by the PBOC nearly every day.

Traders say that corporate dollar demand has reappeared, but demand for yuan still outweighs dollar demand, suggesting the market remains dependent on the central bank to maintain liquidity.

The yuan has weakened steadily from an all-time high of 6.2223 per dollar touched on Nov. 23 due to a series of weaker midpoints as well as the apparent PBOC intervention to buy dollars.

Trading volume was $8.4 billion on Thursday, well above the anemic levels during the deadlock but significantly down from levels seen on Wednesday, when the central bank was apparently still active in the market. Wednesday's full-day volume was $15.1 billion.

The PBOC has repeatedly stated this year that it intends to reduce market intervention, so it's unclear whether authorities will be willing to sustain dollar buying indefinitely.

SWAPS SETTLE DOWN

The swap market returned to apparent balance on Thursday after the central bank's dollar buying had wrought havoc by fuelling expectations of a dollar shortage.

The dollar premium on one-year swaps collapsed to a low of 425 points on Wednesday, after trading consistently above 1,300 for three months until Tuesday.

Traders say panic selling of long forward dollar positions and the breaching of stop-loss triggers caused the collapse. The movement implied a run-up of one-year USD interest rates to 1.55 percent on Wednesday from 0.47 percent a week earlier, according to Thomson Reuters calculations.

Short-term swap points also fell, with overnight swaps entering negative territory on Wednesday, signifying a shift from dollar premium to discount.

But the dollar premium recovered much of its lost ground on Thursday, with one-year swaps closing at 1,059 points and overnights at 2 points.

(Editing by Richard Borsuk)