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Yuan rises on resurgent client demand, firmer mid-point

Chen Yixin and Pete Sweeney
Monday, 10 Feb 2014 | 12:01 AM ET

* Yuan trades at 6.0605 per dollar at midday, off yearly low

* Dealers report client demand is rising

* Yuan may hit 6.05 in coming days - dealer

SHANGHAI, Feb 10 (Reuters) - China's yuan rose slightly on Monday after the People's Bank of China (PBOC) lifted the official mid-point guidance rate, with dealers reporting rebounding client demand as markets get back into swing after the Lunar New Year holiday. Chinese financial markets opened for a single day on Friday following a one-week break, but trading volumes were tepid thanks to extended vacations, traders said. Spot yuan was trading at 6.0605 per dollar at midday, up from 6.0634 at Friday's close after the PBOC set its midpoint slightly firmer at 6.1083, from Friday's 6.1089. "Today's trade is more active than the previous (trading) day, we can see some clients' demand is rising now," said a dealer at a city commercial bank in Shanghai. He expected the yuan could continue to rise slightly to as strong as 6.05 per dollar in the coming days. On Saturday, the PBOC released its quarterly monetary policy report in which it reiterated plans to advance reforms to interest rates and the currency exchange rate system.

Dealers said they were waiting for more details on the reforms but said the expected impact on the yuan's value should be limited.

The onshore spot yuan market at a glance:

Item Current Previous Change (pct) PBOC midpoint 6.1083 6.1089 +0.01 Spot yuan 6.0605 6.0634 +0.05

Divergence from midpoint* -0.78 (pct)

Spot change ytd -0.11 Spot change since 2005 revaluation +36.56

*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 (pct)

Offshore spot yuan 6.0333 0.45* Offshore non-deliverable 6.1125 -0.07**

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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KEY DATA POINTS - Yuan is positive outlier compared with plunging emerging market currencies GRAPHIC: http://link.reuters.com/cyx46v - Hot money tracker: Hot money inflows slowed to a trickle in December 2013 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

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(Editing by Jacqueline Wong)