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Yuan treads water as inflows from MSCI decision seen modest

SHANGHAI, June 21 (Reuters) - China's yuan was flat on Wednesday after the dollar inched down, largely ignoring the prospect of larger capital inflows from MSCI's decision to finally include some Chinese stocks in its emerging market index. The People's Bank of China set the midpoint rate at 6.8193 per dollar prior to market open, weaker than the previous fix of 6.8096. The spot market opened at 6.8304 per dollar and was changing hands at 6.8292 at midday, 3 pips firmer than the previous late session close and 0.15 percent weaker than the midpoint. The yuan has lost about 0.53 percent of its value against the dollar since June 14. While the MSCI decision was likely to increase foreign investment into Chinese "A" shares when it comes into effect in a year's time, the fresh inflows - about $12 billion, according to calculations by ANZ - may still be outweighed by outflows. "We do not anticipate much impact on the CNY from the MSCI index inclusion," ANZ economists Khoon Goh and Raymond Yeung said in a research note. Goldman Sachs and Credit Suisse held a similar view that the impact on the flow of funds would be limited, while HSBC economists and some asset managers said the MSCI decision would be positive for yuan sentiment in the near term. "We think 'A' share inclusion will help strengthen RMB and improve its status as an international currency," said Victoria Mio, chief investment officer China at asset manager Robeco. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.38, firmer than the previous day's 94.14. The global dollar index slipped to 97.7 from the previous close of 97.76. The offshore yuan was trading 0.02 percent away from the onshore spot at 6.828 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 6.995, 2.51 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 4:03AM GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.8193 6.8096 -0.14% Spot yuan 6.8292 6.8295 0.00% Divergence from 0.15%

midpoint*

Spot change YTD 1.72% Spot change since 2005 21.19%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.38 94.14 0.3

Reuters/HKEX CNH index

Dollar index 97.7 97.76 -0.1

*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 6.828 0.02% * Offshore 6.995 -2.51%

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 Samuel Shen, John Ruwitch; Editing by Jacqueline Wong)