Yuan up on firmer midpoint, China faces capital inflow pressure

* PBOC sets stronger midpoint to reflect fall in dollar

* Dealers uncertain over another round of yuan rise

* Yuan under pressure to appreciate on capital inflows

SHANGHAI, Jan 24 (Reuters) - China's yuan rose against the dollar on Friday, guided by a stronger midpoint, while a top foreign exchange official said the country faces continued pressure from capital inflows. Traders expect the inflows to continue nudging the Chinese currency higher. Spot yuan was trading at 6.0473 per dollar at midday, up from 6.0517 at Thursday's close after the PBOC set its midpoint 0.12 percent stronger at 6.1035 from Thursday's 6.1107. Traders said the People's Bank of China appeared to be reacting to a 0.9 percent weakening in the dollar index overnight. However, the PBOC does not consistently respond to the greenback's global performance to decide the Chinese currency's value. Some traders speculated the central bank could be preparing to allow a new round of appreciation. "The yuan is still under pressure to appreciate because of surplus dollars in the market," said a dealer at a Chinese commercial bank in Shanghai. "But the currency's exchange rate is tightly controlled by the PBOC, so any round of appreciation will depend on the central bank's decision. We cannot judge whether it is engineering a new round of yuan appreciation on the basis of a single-day rise in the midpoint." To support the market's view of expected long-term strength for the yuan, China's foreign exchange regulator said on Friday that the country faced pressures from net capital inflows. Guan Tao, head of the department of international payments at the State Administration of Foreign Exchange (SAFE), also told a news conference that China can cope with possible capital outflows caused by U.S. tapering. Before Friday's rise, the yuan had generally moved in a narrow range around 6.05 since the start of this year. It has edged up only 0.05 percent so far this week and is up 0.11 percent so far this year.

The onshore spot yuan market at a glance:

Item Current Previous Change (pct) PBOC midpoint 6.1035 6.1107 +0.12 Spot yuan 6.0473 6.0517 +0.07 Divergence from -0.92

midpoint* (pct)

Spot change ytd +0.11 Spot change since 2005 revaluation +36.86

*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 6.0337 +0.23* Offshore non-deliverable 6.1130 -0.16**


*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 - Hot money distorts China's exports as speculators seek to cash in on yuan, rate reforms - China central bank suggests faster tempo for freeing yuan

- China investors face bumpy ride as reform speculation intensifies - CHINA MONEY - PBOC preparing market for more yuan volatility

KEY DATA POINTS - Hot money returned to China in Sept, Oct after two months of outflows GRAPHIC: http://link.reuters.com/saz74t - China's trade surpluses mainly driven by weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Corporate FX behavior reflects yuan appreciation expectations. GRAPHIC: http://link.reuters.com/tyx74t - 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)