Yuan firms slightly on dollar slide, no reaction to Q4 GDP data

SHANGHAI, January 18 (Reuters) - The Chinese yuan edged up on Friday after the central bank set the official midpoint higher for the first time in three days, reflecting overnight weakness in the dollar. Spot yuan opened a few points firmer than Thursday's close and remained within an extraordinarily tight 13-pip range throughout the morning. Volumes were moderate, clocking over $7 billion by midday. Transaction volumes frequently pick up dramatically in the afternoon session prior to a weekend. The spot market appeared to have already priced in positive economic data released on Friday morning that showed annual GDP growth in the fourth quarter picked up to 7.9 percent, slightly better than expectations. Traders have said that intra-day customers are more focused on international developments impacting the dollar index, and economists are concerned about other signs that housing inflation might be returning, which could prompt Beijing to tighten monetary policy.

The onshore spot market at a glance:

Item Current Previous Pct change

close

PBOC midpoint 6.2752 6.2767 0.02 Spot yuan 6.2151 6.2160 0.01 Divergence from midpoint 0.96

(pct)*

Spot change ytd (pct) 0.24 Spot change since 2005 24.91

revaluation (pct)

*The People's Bank of China (PBOC) allows the exchange rate to rise or fall 1 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET Offshore markets stayed flat by Friday midday, with offshore spot continuing to trade at a premium to the onshore spot and

one-year non-deliverable forwards trading at a

slight discount.

The offshore yuan market at a glance:

Instrument Current Difference from onshore Offshore spot yuan 6.1875 0.44

(pct)

Offshore 6.2775 -0.04

non-deliverable forwards (pct)

* The difference between offshore spot and the onshore spot

** Offshore one-year non-deliverable forwards (NDFs) reflect market expectations for appreciation or depreciation of PBOC's official midpoint.

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MARKET DRIVERS -- Forces underpinning yuan rally to lose steam in 2013

-- Offshore yuan premium returns as market bets on appreciation -- Spot yuan has rallied strongly since late July 2012, and the PBOC is using its daily midpoint to restrain further appreciation. 1/8Graphic: http://link.reuters.com/pyx74t 3/8 -- China's trade surplus surged in late 2012, but the surge was mainly due to weak imports rather than strong exports. 1/8Graphic: http://link.reuters.com/qav68s 3/8 -- Corporate yuan purchases still exceed dollar purchases, but the gap is narrowing. Exporters are converting progressively smaller portions of their foreign exchange receipts into yuan. 1/8http://link.reuters.com/syx74t 3/8 -- Hot money outflows may be putting downward pressure on the yuan. 1/8Graphic: http://link.reuters.com/saz74t 3/8 -- Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. 1/8Graphic: http://link.reuters.com/sed74t 3/8

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(Editing by Kim Coghill)