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China's yuan steady as volatility tapers off this week

HONG KONG, May 16 (Reuters) - China's yuan is set to record a small weekly loss against the dollar after posting its strongest week in more than two years last week, as the market awaits clearer signals on direction. Spot yuan held largely steady on Friday, changing hands at 6.2318 per dollar near midday, down 0.02 percent from Thursday's close at 6.2306. It has fallen 0.06 percent for the week, the lowest weekly volatility seen in five weeks. The People's Bank of China (PBOC) set the official midpoint at 6.1628, up 0.02 percent from the previous day's 6.1640. "The market has been rangebound for the week and I think it will continue to trade within a tight range for some time," said a trader at a Chinese bank in Shanghai. The redback has steadily appreciated by more than 30 percent since its landmark revaluation in 2005, and many market participants believe it is close to its equilibrium level while two-way fluctuations will be the new norm for the market. China will keep the yuan basically stable and push forward market-based reforms to increase its two-way flexibility, the central government said in a detailed guideline released on Thursday. Speculative money that bet on non-stop yuan appreciation was forced to unwind their long yuan positions as the central bank engineered sharp weakness of its currency earlier this year which wiped out all its gains recorded in 2013. Amid the weak sentiment on the yuan, corporates were also inclined to hold more dollars to avoid losses on further yuan depreciation as shown by statistics from the central bank. China's central bank and commercial banks purchased 116.9 billion yuan ($18.76 billion) worth of foreign exchange on a net basis in April, the lowest level in eight months, according to a Reuters calculation based on central bank data released on Thursday.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.1628 6.164 0.02% Spot yuan 6.2318 6.2306 -0.02% Divergence from midpoint* 1.12% Spot change ytd -2.85% Spot change since 2005 revaluation 32.81%

* 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 2 percent from 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 * 6.2324 -0.03% Offshore non-deliverable 6.233 -1.13% forwards **

*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 - US warns China over currency depreciation - Capital flows, improving trade to prop up yuan in H2 - Dim sum bonds mark record quarter in Hong Kong

- New quotas rekindle debate over dim sum market's future

- Flood of offshore yuan bonds may spark higher yields

KEY GRAPHICS - China hot money inflows moderate in early 2014 http://link.reuters.com/raz74t - The yuan trades weaker than fix, tests wider trading band http://link.reuters.com/qyx74t - China's yuan, other emerging mkt currencies vs dollar http://link.reuters.com/xyd46v - Chinese corporate FX behavior still reflects appreciation expectations http://link.reuters.com/syx74t - Global currency performance INTERACTIVE GRAPHIC: http://link.reuters.com/cyx46v - China's exports, imports, and trade surpluses GRAPHIC: http://link.reuters.com/qav68s - Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> ($1 = 6.2306 Chinese Yuan)

(Editing by Jacqueline Wong)