Yuan ends up as c.bank signals priority to keep currency stable

* Yuan closes at 6.2273/dollar, up 0.04 pct from Tuesday

* PBOC sets midpoint 0.02 pct stronger

* Intent to keep yuan stable before parliamentary session

SHANGHAI, Feb 27 (Reuters) - The yuan ended up against the dollar on Tuesday after the People's Bank of China (PBOC) set a slightly firmer midpoint, which traders said signalled its intent to keep the yuan stable before an annual parliamentary session in the first half of March. Spot yuan closed at 6.2273 per dollar, up 0.04 percent from Tuesday's close after the PBOC set its daily midpoint up 0.02 percent from the previous day's midpoint. Volumes were thin at $11.13 billion worth of transactions, although that was up from $9.86 billion on Tuesday. Traders said the PBOC's mandate to keep the exchange rate stable in the run-up to the National People's Congress has offset the depreciatory impact the strong dollar index would ordinarily exert on the yuan's value. The dollar index has risen 3.3 percent this month, while the yuan was down 0.14 percent in February. China's central bank also tends to keep the yuan's exchange rate stable amid global currency market uncertainties, and it has shown the same tendency during the recent depreciation of Asian currencies, led by the Japanese yen, traders said.

The onshore spot yuan market at a glance:

Item Current Previous Change

(pct)

PBOC midpoint 6.2842 6.2856 +0.02 Spot yuan 6.2273 6.2295 +0.04

Divergence from midpoint*(pct) -0.91

Spot change ytd (pct) +0.05 Spot change since 2005 +32.91

revaluation

*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 1 percent from the official midpoint rate it sets each morning.

OFFSHORE CNH MARKET In the Hong Kong market, the premium between the offshore

yuan and the onshore yuan that began widening in

December has largely disappeared.

The one-year non-deliverable forward contract ,

considered an imperfect indicator of expectations, continues to trade at prices implying depreciation over the next 12 months.

The offshore yuan market at a glance:

Instrument Current Difference from

onshore (pct)

Offshore spot yuan 6.2245 +0.04*Offshore non-deliverable 6.3202 -0.57**

forwards

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .

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MARKET DRIVERS - China restrains yuan rise in response to Asian currency weakness - Forces underpinning yuan rally to lose steam in 2013

- The yuan non-deliverable forward (NDF) market is rapidly losing market share as more corporate fund flows are switched to the deliverable market - Spot yuan has rallied strongly since late July 2012, and the PBOC is using its daily midpoint to restrain further appreciation. GRAPHIC: http://link.reuters.com/pyx74t - China's trade surplus surged in late 2012, but the surge was mainly due to weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - 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. GRAPHIC: http://link.reuters.com/syx74t - Hot money outflows may be putting downward pressure on the yuan. GRAPHIC: http://link.reuters.com/raz74t - Despite a relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t

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(Editing by Jacqueline Wong)