Yuan weakens slightly, eyes on global dollar performance

SHANGHAI, January 21 (Reuters) - The Chinese yuan edged lower on Monday morning after the central bank set the official midpoint slightly weaker to reflect the strength in the global dollar late last week, traders said. Spot yuan was trading at 6.2187 at midday, weakening slightly from Friday's close of 6.2154, with traders saying banks and their clients were largely comfortable with the current level of the dollar/yuan rate. Volumes were moderate, dropping to $5.6 billion by midday from slightly over $7 billion on Friday morning. Traders have said that intra-day customers are focused on international developments impacting the dollar index in the absence of domestic market-moving factors.

The onshore spot market at a glance:

Item Current Previous Pct change

close

PBOC midpoint 6.2790 6.2752 -0.06 Spot yuan 6.2187 6.2154 -0.05 Divergence from midpoint 0.96

(pct)*

Spot change ytd (pct) 0.10 Spot change since 2005 33.09

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 par

with the midpoint.

The offshore yuan market at a glance:

Instrument Current Difference from onshore Offshore spot yuan 6.192 0.43

(pct)

Offshore 6.279 0.00

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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(Reporting by Lu Jianxin and Pete Sweeney; Editing by Simon Cameron-Moore)