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Yuan little changed, big banks seen buying dollars

SHANGHAI, July 17 (Reuters) - China's yuan stayed flat against the dollar on Thursday as dollar supply and demand was roughly balanced out by sales from industrial companies on the one hand and massive purchases by several large Chinese banks on the other, traders said. Spot yuan stood at 6.2037 per dollar at midday, up a mere 0.02 percent from Wednesday's close. The People's Bank of China (PBOC) fixed its official midpoint at 6.1564 per dollar, down 0.05 percent from Wednesday. Thursday was the fifth straight trading day on which the PBOC has fixed the official rate slightly lower and traders said that implied the monetary authorities wanted to keep the yuan just weaker than the psychologically important 6.20 level for now. "The market opened at a relatively high price, encouraging corporates to sell dollars, but some large Chinese banks came in to buy dollars later, which offset the corporate dollar sales," said a trader at a Chinese commercial city bank in Shanghai. Big dollar purchases by major state-owned banks often indicate the PBOC is using the banks to intervene in trading to influence the yuan's value, although traders said they were not certain this was the case on Thursday. Still, traders pointed out the central bank has recently loosened its controls over the market to allow the yuan to be more market-determined as a steep yuan depreciation earlier this year has helped bring dollar supply and demand roughly into balance. Data on Wednesday from the Bank for International Settlements (BIS) showed the Chinese currency began stabilising in June after falls in the first five months of this year. The BIS index for the yuan's real effective exchange rate (REER) - the currency's value against a trade-weighted basket after adjustments based on inflation - rose 0.37 percent to 110.99 in June from 110.58 in May, the first appreciation since January this year. "The data largely reflects the yuan's movements in the market this year," said a trader at an Asian bank in Shanghai. "In the near term, the yuan will keep steady in a tight range as long as the central bank maintains a loosening stance." The PBOC engineered a steep yuan depreciation in the first four months of the year to stop speculation that it would continue to appreciate, as it has done since a landmark revaluation in 2005. However, from May the central bank shifted to holding the yuan steady, suggesting its drive to guide the currency lower might be largely over. Market participants believe the currency may be close to its equilibrium level and two-way fluctuations will become the norm.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.1564 6.1535 -0.05% Spot yuan 6.2037 6.2047 0.02%

Divergence from midpoint* 0.77%

Spot change ytd -2.41% Spot change since 2005 revaluation 33.41%

*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 6.2043 -0.01% Offshore non-deliverable 6.258 -1.62% 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, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t

For a summary of all recent coverage and graphics on the internationalisation of the yuan, click here:

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(Reporting by the Shanghai Newsroom; Editing by Alan Raybould)