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China's yuan firms on stronger fixing, set for the 3rd winning month

SHANGHAI, July 31 (Reuters) - China's yuan firmed against the U.S. dollar on Monday after the official guidance was fixed at the strongest level in over nine months, putting the currency on course for the third straight month of gains. The People's Bank of China set the yuan midpoint at 6.7283 per dollar on Monday, the highest level since Oct. 14, 2016, to reflect broad weakness in the greenback. Monday's official guidance was 90 pips or 0.13 percent firmer than the previous fix at 6.7373 per dollar on Friday. The dollar was weighed down by U.S. political uncertainty and uninspiring U.S. data that added to doubts about whether there will be another Federal Reserve rate hike this year.

In the spot market, the yuan opened at 6.7350 per dollar, rose to a high of 6.7251 before changing hands at 6.7270 at midday, 90 pips firmer than the previous late session close and 0.02 percent stronger than the midpoint. If the yuan finishes the late night session at the current level, it will have strengthened around 0.8 percent against the dollar for the month, the third straight winning month. Traders said some corporate dollar demand capped the Chinese currency, while the market largely shrugged off an official survey showing slight cooling in the nation's vast manufacturing sector. Most analysts expect the world's second-largest economy will slow in coming months as borrowing costs rise and regulators clamp down on riskier types of financing. The yuan has stabilised since the second quarter and has gained on the dollar, thanks to stepped up capital control measures from Beijing which appear to have flushed out most of the yuan bears. The yuan gained around 0.45 percent against the dollar last week, but on a trade-weighted basis against a basket of currencies of its trading partners, it edged down 0.18 percent to 92.74 from 93.91 a week earlier, according to official data from the China Foreign Exchange Trade System (CFETS). The CFETS publishes index figures on a weekly basis. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.85, firmer than the previous day's 93.84. The global dollar index rose to 93.45 from the previous close of 93.259. The offshore yuan was trading 0.04 percent weaker than the onshore spot at 6.73 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 6.853, 1.82 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0406 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.7283 6.7373 0.13% Spot yuan 6.727 6.736 0.13% Divergence from -0.02%

midpoint*

Spot change YTD 3.27% Spot change since 2005 23.03%

revaluation

Key indexes:

Item Current Previous Change Thomson 93.85 93.84 0.0

Reuters/HKEX CNH index

Dollar index 93.45 93.259 0.2

*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 6.73 -0.04% * Offshore 6.853 -1.82%

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 Lisa Twaronite & Shri Navaratnam)