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China's yuan rises as corporate dollar sales offset weak PBOC midpoint

* Dollar sales may point to improving exports - traders

* Weaker midpoint seen aimed to dampen sentiment to yuan

* Yuan seen moving between 6.20/25 early next week

* June trade data may offer clues for near-term trend

SHANGHAI, July 4 (Reuters) - China's yuan strengthened against the dollar on Friday as heavy corporate dollar sales offset a weaker central bank midpoint, traders said. Spot yuan stood at 6.2075 per dollar at midday, up 0.09 percent from Thursday's close in line with recent bullish sentiment towards the yuan's medium-term future. If the yuan closes at that level, it would gain 0.2 percent this week, the second week of modest rises. Investor sentiment on most emerging Asian currencies improved in the last two weeks with long positions in the yuan at their largest in nearly five months, a Reuters poll showed on Thursday. To dampen speculation that the yuan may resume its appreciation, the People's Bank of China (PBOC) set its official midpoint weaker for the third day on Friday, at 6.1642, down 0.10 percent from Thursday. Beijing's latest reform in the mechanisms to price the yuan, the liberalisation of the currency's retail exchange rate, has no immediate impact on the yuan's interbank market rate, traders said. "Corporate dollar sales are heavy today, possibly implying that China's exports are improving, resulting in healthy trade surplus," said a dealer at a Chinese commercial bank in Shanghai. "That has helped offset the PBOC's weaker midpoint today, but if the central bank persisting in keeping its official rate weak, the yuan should have limited upside for now," he said. As such, the yuan is likely to move in a narrow range of 6.20/25 early next week, traders said. China is set to announce June trade data next week and traders said whether the trade surplus could exceed $25 billion will be crucial for whether the yuan could effectively rise above 6.20 later this quarter, traders say. If June trade data is healthy, plus that an economic recovery that supports a stronger yuan, the currency could rise to a new range of 6.15/20 in the third quarter, they say. The Chinese currency hit a three-month high of 6.1970 in intraday trade on Tuesday, buoyed by increased corporate dollar sales. That appeared to push the PBOC to fix a slew of weaker midpoints afterwards, traders said. The PBOC engineered a fall in the yuan earlier this year, guiding it down by as much as 3.4 percent, to dampen speculative bets on one-way yuan appreciation. More recently, however, the central bank has shifted to holding the currency steady, suggesting that its drive to guide the yuan lower is largely over, although the yuan is still down 2.47 percent so far this year. Before this year's unexpected depreciation, the yuan appreciated by more than 30 percent since its landmark revaluation in 2005. Many market participants believe the "redback" is close to its equilibrium level and two-way fluctuations will be the new norm.

The onshore spot yuan market at a glance:

Item Current Previous Change (pct) PBOC midpoint 6.1642 6.1581 -0.10 Spot yuan 6.2075 6.2129 -0.09

Divergence from midpoint* 0.70 (pct)

Spot change ytd -2.47 Spot change since 2005 33.33

revaluation

*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 6.2073 0.00 Offshore non-deliverable 6.2540 -1.44

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 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

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(Editing by Kim Coghill)