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China's yuan steadies, U.S. jobs and French election in focus

SHANGHAI, May 5 (Reuters) - China's yuan was steady against the U.S. dollar on Friday, with sentiment improving on firmer signals from the authorities and as investors trimmed bearish bets on the Chinese currency. The People's Bank of China set the midpoint rate at 6.8884 per dollar prior to market open, firmer than the previous fix of 6.8957. Friday's fixing was around 50 pips stronger than some institutions' models had suggested. Traders said Thursday's fixing was also around 80 pips higher compared with their forecasts. The stronger-than-expected guidance rates might have been a result of the midpoint fixing mechanism, traders said, which eliminates some of the highest and lowest quotes from contributors. Multiple market participants said the authorities have been sending a clear signal about a stabilizing yuan to the market by fixing the yuan midpoint slightly stronger. "Recent (USD/CNY) midpoint fixings showed some downside bias," said a trader at a foreign bank in Shanghai. In the spot market, the yuan opened at 6.8930 per dollar and was changing hands at 6.8957 at midday, only 1 pip softer than the previous late session close and 0.11 percent weaker than the midpoint. For the week, the yuan was flat against the U.S. currency. In a Reuters poll this week, the yuan was forecast to weaken to 7.07 per dollar in a year. Investors have increased their bullish bets on the Chinese yuan compared with two weeks ago, a separate Reuters poll showed on Thursday, in part bolstered by stronger emerging market currencies rallying on investor relief the French elections seem to be going in favor of the market's preferred candidate. The run-off second round vote is on May 7. Independent centrist candidate Emmanuel Macron appeared to cement his position as favorite for the French presidency on Thursday as the dust settled on a rancorous final televised debate with far-right rival Marine Le Pen. Markets are also looking to U.S. non-farm payrolls figures later on Friday and China's April foreign exchange reserves data expected on Sunday. Economists polled by Reuters had expected foreign exchange reserves to rise by $11.0 billion to $3.02 trillion in April. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.95, weaker than the previous day's 94.07. The global dollar index fell to 98.789 from the previous close of 98.797. The offshore yuan was trading 0.02 percent weaker than the onshore spot at 6.8968 per dollar. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.0985, 2.96 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0323 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.8884 6.8957 0.11% Spot yuan 6.8957 6.8956 0.00% Divergence from 0.11%

midpoint*

Spot change YTD 0.74% Spot change since 2005 20.02%

revaluation

Key indexes:

Item Current Previous Change Thomson 93.95 94.07 -0.1

Reuters/HKEX CNH index

Dollar index 98.789 98.797 0.0

*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

Instrument Current Difference

from onshore

Offshore spot yuan 6.8968 -0.02% * Offshore 7.0985 -2.96%

non-deliverable forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .

(Reporting by Winni Zhou and John Ruwitch; Editing by Jacqueline Wong)