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China's yuan edges higher, unchanged for the week

Lu Jianxin and Pete Sweeney
Thursday, 21 Nov 2013 | 11:57 PM ET

* C.bank keeps yuan stable following strengthening in mid-Oct

* Yuan may stay in a narrow rang until mid-Dec - traders

* Offshore market optimistic about China's currency reforms

* Premium for offshore yuan 200-300 pips this week from 30 pips in Oct

SHANGHAI, Nov 22 (Reuters) - The yuan rose slightly against the dollar on Friday, making it flat for the week, which traders said fits with the central bank's wish to keep the currency stable following a round of appreciation in mid-October. Spot yuan traded at 6.0922 per dollar near midday, up 0.02 percent from Thursday's close of 6.0932. The People's Bank of China (PBOC) fixed Friday's midpoint at 6.1380, or 0.02 percent weaker than Thursday's 6.1366, signalling it has no intention to let the yuan rise or fall sharply in the near term, traders said. Over a roughly two-week period in October, the PBOC guided yuan to strengthen 0.6 percent, riding on a slump then of the dollar and ahead of publication of a politically- sensitive currency report by the U.S. Treasury late month. The central bank has controlled the pace of yuan rises since the currency's landmark revaluation in 2005. It has let the currency mainly appreciate during major political events, such as Chinese leaders' visits to the United States or participation in global events, while maintaining stability at other times. Without any international events recently and with the dollar index relatively stable, it has been "easy for the PBOC to maintain stability of the yuan," a trader at a Chinese commercial bank in Shanghai said. The central bank may allow another round of yuan appreciation in the second half of December, to set how much it would have appreciated in 2013, several traders said.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.1380 6.1366 -0.02% Spot yuan 6.0922 6.0932 +0.02%

Divergence from midpoint* -0.75%

Spot change ytd 2.27% Spot change since 2005 revaluation 35.85% *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 official midpoint rate it sets each morning.

OFFSHORE CNH MARKET While PBOC intervention has restrained the yuan's appreciation onshore, optimism about China's reforms has caused the yuan traded in Hong Kong to rise more sharply. As a result, the spread between the yuan traded on the mainland and its offshore counterpart in Hong Kong has widened. This week, offshore yuan has traded at a premium of 200 to 300 pips, compared with only 30 pips at the end of October. PBOC governor Zhou Xiaochuan has dangled the prospect of speeding up currency reforms. The central bank under Zhou has consistently flagged its intention to liberalise financial markets and allow the yuan to trade more freely, even before the Communist Party's top brass unveiled late last week the boldest set of economic and social reforms in nearly three decades. After the 60-point reform plan was released, Zhou suggested urgency in pushing for change, although he has not provided any specific timetable.

The offshore yuan market at a glance:

Instrument Current Difference from onshore Offshore spot yuan 6.0728 0.32% Offshore non-deliverable 6.1494 -0.19%

forwards

*Premium for offshore spot over onshore

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

KEY DATA POINTS - 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

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(Editing by Richard Borsuk)