China's yuan rises on signs of economic recovery, but upside limited
* Services PMI at 5-month high, adds to growth momentum
* Traders report corporate dollar sales
* PBOC sets slightly weaker midpoint on dollar strength
* Yuan under pressure from Asian currency depreciation
SHANGHAI, Sept 4 (Reuters) - China's yuan rose slightly against the dollar on Wednesday amid further signs of economic momentum in the world's second-largest economy, while traders said dollar selling by companies continues to support the Chinese currency. Growth in China's services sector hit a five-month high in August, underpinned by optimism over government policy measures, a private survey showed, the latest evidence that the world's second-largest economy may have averted a sharp slowdown. The Markit/HSBC Services Purchasing Managers' Index (PMI) climbed to 52.8 in August, up from July's 51.3 and the highest since March, the survey showed on Wednesday. However, in a sign that the People's Bank of China (PBOC) may not want to over stimulate the market, the central bank set a slightly weaker mid-point on Wednesday following a rally in the dollar index, traders said. Spot yuan changed hands at 6.1205 per dollar at midday, inching up 0.01 percent from the previous close, even after the PBOC set its midpoint at 6.1729, or 0.02 percent weaker than Tuesday's 6.1718. "Despite today's small gain, spot yuan's movements remain largely decided by the PBOC's midpoint," said a dealer at a Chinese commercial bank in Shanghai. "Both recent signals sent by the central bank and depreciation of other Asian currencies will cap the yuan's rise in the near term, even though the currency was temporarily supported by corporate dollar sales this morning." The yuan has gained 1.81 percent far this year, bucking the weakening trend of emerging market currencies. However, the bulk of the yuan's gains were in April and May.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1729 6.1718 -0.02 Spot yuan 6.1198 6.1206 +0.01
Divergence from midpoint* -0.86 (pct)
Spot change ytd +1.81 Spot change since 2005 revaluation +35.24
*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
The offshore yuan market at a glance:
Instrument Current Difference from onshore
Offshore spot yuan 6.1159 +0.06* Offshore non-deliverable 6.2340 -0.98**
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
RECENT DEVELOPMENTS - CHINA MONEY-Faltering exports could mean flat yuan or worse in H2 - Yuan rally starts to fade as capital inflows to China slow
- ANALYSIS-Bullish yuan herd leaves China fundamentals in the dust - Currency war or no, Beijing doesn't want Asia to take stable yuan for granted - China opens new front in money war as yuan speculation distorts export data
KEY DATA POINTS - PBOC's FX assets dropped in June, pointing to possible capital outflows: GRAPHIC: http://link.reuters.com/het22v - Gap between PBOC midpoint and spot rate is narrowing. GRAPHIC: http://link.reuters.com/qyx74t - China's trade surpluses mainly driven by weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Corporate FX purchases in May show reduction in yuan appreciation expectations. GRAPHIC: http://link.reuters.com/tyx74t - Hot money inflows turn to outflows in May GRAPHIC: http://link.reuters.com/saz74t - Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t
(Editing by Jacqueline Wong)