Yuan sets new record high as dollar dives
* Spot at all-time high of 6.2149
* Dollar continues to slump in global markets
* Offshore NDFs pull back slightly
SHANGHAI, Jan 14 (Reuters) - China's yuan hit a record high for a second straight trading day on Monday as the dollar index continued to slide against a bullish euro.
The yuan changed hands at 6.2149 per dollar at midday, firming slightly from 6.2161 at Friday's close and the highest it has traded since the creation of the domestic forex market.
Trading volumes were strong, with more than $10 billion worth of transactions posted by noon.
The central bank set its midpoint at 6.2695 per dollar, closing in on its all-time high of 6.2670 struck on May 2, 2012. Friday's midpoint was 6.2712 per dollar.
While optimism about China's economy has been rising steadily thanks to recent economic data, including unexpectedly strong export figures in December, a trader at a joint-stock bank in Shanghai said clients were mostly paying attention to the movements in the euro, which strengthened against the dollar in international markets.
"The yuan is mostly up on overnight movements in the dollar index," he said.
"Everything is appreciating against the dollar, it's not just the yuan. Of course the export figures matter, but that is not the major factor."
He added that Chinese corporate customers are wary of buying dollars at current low rates, but if the central bank allows the current trend to continue, they will likely adjust their strategies.
A similar rally in late 2012 was suppressed by the central bank in December using a combination of conservative midpoint settings and behind-the-scenes dollar buying to halt the yuan's rise, traders said.
The exchange rate is allowed to diverge by only 1 percent in either direction from the central bank's daily midpoint.
The central bank issued a statement over the weekend indicating general support for further opening of its capital account and other methods to strengthen the offshore yuan market.
On Monday, China's chief securities regulator Guo Shuqing said that China could increase the quotas for foreign investors in the Renminbi Foreign Qualified Institutional Investors (RQFII) programme by a factor of 10. The programme allows foreigners to trade yuan-denominated stocks in mainland companies via Hong Kong.
Such statements buttressed the sustained optimism that continues to characterise the offshore yuan (CNH) market in Hong Kong, which has consistently been more bullish than the onshore market since late November.
"The whole market is risk-on now given the U.S. fiscal cliff problem has been solved and economic data from China are quite positive," said a trader in Hong Kong.
The yuan traded offshore is unconstrained by the central bank's midpoint, and foreign investors are using it to bet that the yuan will continue to appreciate in the near future.
CNH traded at 6.1845 at midday.
Offshore one-year non-deliverable forwards (NDF) , which are settled against the official midpoint, have been less optimistic, persistently forecasting depreciation in the midpoint over the next 12 months.
On Thursday, NDFs crossed into optimistic territory for the first time since the first quarter of 2012, trading slightly firmer than the midpoint at 6.2665 per dollar.
Traders backed off by Friday afternoon and the NDF remained weaker than the midpoint on Monday, but spreads between NDF and the midpoint remain tight.
(Additional reporting by Michelle Chen; Editing by Richard Borsuk)