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China's yuan firms, minimal impact from PBOC injection of funds

SHANGHAI, May 12 (Reuters) - China's yuan firmed against the U.S. dollar on Friday after the central bank fixed a stronger midpoint, while easing liquidity pressure in the money market had minimal impact, traders said. China's central bank injected fresh funds through a medium-term lending facility on Friday while keeping a tight rein on short-term funding in what appeared to be a further effort to dampen speculative investment while keeping the economy adequately funded. The People's Bank of China set the midpoint rate at 6.8948 per dollar prior to market open, firmer than the previous fix 6.9051. The spot market opened at 6.9006 per dollar and was changing hands at 6.9012 at midday, 13 pips stronger than the previous late session close but 0.09 percent weaker than the midpoint. For the week, the yuan is on course to finish flat on the U.S. unit. There was some corporate dollar demand on Friday, traders said, but they noted that the thirst for the greenback was eclipsed by the higher mid-point. "The yuan was still trading range-bound," said a trader at a foreign bank in Shanghai. Some institutions took advantage of tiny price swings to make intraday trades for quick profits, which pushed up daily trading volume to $14.45 billion as of midday. Beijing is scheduled to hold the Belt and Road Forum on May 14-15, and traders expect the foreign exchange market to remain stable in coming days as authorities usually try to avoid any volatility ahead of and during major political and economic events. The Chinese yuan faced some downward pressure earlier in the week when the yuan midpoint was fixed at its lowest for several weeks amid a broadly stronger dollar. The yuan's downside was contained on those days as major state-owned banks sold dollars in the onshore market, though none of that activity was evident on Friday. Traders said the dollar sales were done to meet corporate demand. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.16, firmer than the previous day's 94.11. The global dollar index fell to 99.579 from the previous close of 99.623. The offshore yuan was trading 0.01 percent softer than the onshore spot at 6.9022 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 7.097, 2.85 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0344 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.8948 6.9051 0.15% Spot yuan 6.9012 6.9025 0.02% Divergence from 0.09%

midpoint*

Spot change YTD 0.66% Spot change since 2005 19.93%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.16 94.11 0.1

Reuters/HKEX CNH index

Dollar index 99.579 99.623 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 6.9022 -0.01% * Offshore 7.097 -2.85%

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; Editing by Shri Navaratnam)