* PBOC sets midpoint weaker after yuan's recent strength
* Traders say PBOC signals no resumption of yuan rises
* Yuan weakening this year cuts need for PBOC intervention
* Govt to continue keep yuan lacklustre to curb inflows
SHANGHAI, June 16 (Reuters) - China's yuan weakened slightly against the dollar on Monday after the central bank set a weaker midpoint in what traders said was the PBOC signalling is not seeking to bolster the yen -despite the Chinese currency's recent strength. The yuan staged its biggest weekly rise of 0.6 percent since late 2011 last week after the People's Bank of China (PBOC) fixed a series of strong midpoints to reflect increased dollar supply in the domestic market after China recorded its biggest foreign trade surplus in five years in May. But the government is apparently unwilling to see the yuan resume steep appreciation after the PBOC engineered a sharp depreciation earlier this year to clamp down on rampant one-way betting on a rising yuan. That intention was made clear last week when China's foreign exchange regulator explicitly said Beijing no longer encourages heavy capital inflows because the accumulation of foreign funds has caused losses on China's $4 trillion reserve stockpile - the world's biggest. 1/8ID:nL4N0OT0T4 3/4 Spot yuan stood at 6.2244 per dollar at midday, down 0.06 percent from Friday's close, after the PBOC fixed its midpoint at 6.1537, down the same percentage point from Friday. Despite its brief rally last week, the yuan has still fallen 2.58 percent against the dollar since the start of this year. This bout of weakness has helped to reduce capital inflows into the country since the start of this year, central bank data has shown. For instance, the PBOC and commercial banks together bought just 38.7 billion yuan ($6.22 billion) of foreign exchange on a net basis in May, down further from an already reduced 116.9 billion yuan in April and the least since last September, PBOC data published on Monday showed. Because of this year's depreciation, Chinese companies now tend to retain more dollars on hand - in contrast to their eagerness to sell every dollar they earned in the previous several years when the yuan was a one-way appreciation play. That change has made it less necessary for the PBOC to intervene in trading to curb yuan appreciation as it has done over the past few years. "The yuan's depreciation has allowed the authorities to slow the accumulation of dollars in China's already huge stockpile," said a trader at a European bank in Shanghai. "As such, the government is expected to keep the yuan's value lacklustre for now until there are really huge trade surpluses that the PBOC must let the yuan appreciate to some extent to absorb excessive dollar supply." The recent shift to holding the currency steady further suggests efforts to continue deterring speculative bets on the yuan's rise. Thus, traders said, the yuan was likely to move mainly between 6.20 and 6.25 in the coming weeks. The PBOC has never said it was deliberately pushing the yuan down, but currency dealers told Reuters they suspected the drop was driven primarily by China's "Big Four" state-owned banks, which bought dollars in the domestic foreign exchange market at the PBOC's behest.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1537 6.1503 -0.06 Spot yuan 6.2144 6.2107 -0.06
Divergence from midpoint* 0.99 (pct)
Spot change ytd -2.58 Spot change since 2005 32.18
*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.
The offshore yuan market at a glance:
Instrument Current Difference
from onshore (pct)
Offshore spot yuan 6.2113 0.05 Offshore non-deliverable 6.2215 -1.09
*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 spot performance versus midpoint after trading band widened http://link.reuters.com/jyz38v - China's yuan, other emerging mkt currencies vs dollar http://link.reuters.com/xyd46v - Global currency performance INTERACTIVE GRAPHIC: http://link.reuters.com/cyx46v - China's trade surpluses mainly driven by weak imports rather than strong exports. 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