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China's yuan slips amid signs of c.bank intervention, ignores strong trade data

fake trade transactions, where traders forge deals to sneak
Wednesday, 12 Feb 2014 | 11:11 PM ET

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* No sign of heavy USD sales despite strong trade data

* Hot money inflows may have distorted trade data

* State banks seen buying USD to curb yuan rise

* Exchange rate seen hovering around 6.06 in near term

SHANGHAI, Feb 13 (Reuters) - China's yuan edged lower against the dollar on Thursday as traders reported lower-than-expected corporate dollar sales despite data showing an unexpectedly large trade surplus in January. Spot yuan changed hands at 6.0651 per dollar at midday, 0.04 percent weaker than Wednesday's close. The exchange rate fluctuated within a narrow range between 6.0640 and 6.0662 during morning trade. The dip in the yuan's value tracked the central bank's daily midpoint, which was set at 6.1100, 0.04 percent weaker than Wednesday's fixing. Traders said there were also signs of central bank intervention aimed at keeping the yuan stable around the current value. Major state-owned banks were seen buying dollars. "Corporate dollar sales were quite weak this week in comparison with the January foreign trade data," said a dealer at a major Chinese commercial bank in Shanghai. "And state-owned banks appeared to buy dollars in the market, leading the yuan to weaken slightly today." China surprised markets with a thumping trade performance in January, with trade surplus rising to $31.9 billion in the month, well above forecasts of $23.7 billion and December's $25.6 billion, drawing some scepticism about the data. Analysts who had expected the long Lunar New Year holiday to drag on January's trade warned that the figures may be inflated cash into the country past capital controls. China's central bank also appears to favor yuan stability as it seeks to prevent the capital outflows that have afflicted other emerging markets in recent weeks. Traders expect the yuan to hover around 6.06 in the coming weeks.

The onshore spot yuan market at a glance:

Item Current Previous Change (pct) PBOC midpoint 6.1100 6.1078 -0.04 Spot yuan 6.0651 6.0624 -0.04

Divergence from midpoint* -0.73 (pct)

Spot change ytd -0.18 Spot change since 2005 revaluation +36.46

*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

The offshore yuan market at a glance:

Instrument Current Difference from onshore

(pct)

Offshore spot yuan 6.0416 +0.39* Offshore non-deliverable 6.1115 -0.02**

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 Kim Coghill)