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China's yuan strengthens to 9-1/2-month high on higher fixing

SHANGHAI, Aug 1 (Reuters) - China's yuan firmed against the U.S. dollar on Tuesday after the official guidance was lifted to a 9-1/2-month high following a slide in the greenback overnight stemming partly from U.S. political turmoil. During July, the Chinese currency strengthened around 0.8 percent against the dollar. It was the first time since 2014 that the yuan gained for three consecutive months, a streak aided by the struggling greenback and Beijing's capital control measures that have flushed out most yuan bears. On Tuesday, the People's Bank of China (PBOC) set the yuan midpoint at 6.7148 per dollar, the strongest level since Oct. 11, reflecting broad weakness in the U.S. currency. Tuesday's official guidance was 135 pips or 0.2 percent firmer than the previous fix at 6.7283 per dollar. The dollar weakened in the overseas markets overnight, during which White House communications director Anthony Scaramucci was fired. In the spot market, the onshore yuan opened at 6.7170 per dollar and was changing hands at 6.7187 at midday, its strongest level in 9-1/2 months. The yuan was 103 pips firmer than the previous late session close but 0.06 percent weaker than the midpoint. The offshore yuan also breached 6.72 per dollar and reached its strongest levels in more than nine months in initial trade. It then shed some of the gain and was trading at 6.7215 per dollar at midday. Some companies who held dollar positions were seeking chances to liquidate and stop exchange losses, while some others were taking advantage of a cheap greenback to stock up their positions, traders said. Daily trading volume rose to $16.408 billion at midday, compared with full-day volume of $24.425 billion on Monday. "Most investors will be paying close attention to the 6.70 level on the USDCNH, bearing in mind that this was previously seen as a huge psychological milestone for the pair," Jameel Ahmad, vice president for market research at foreign exchange brokerage FXTM. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.71, weaker than the previous day's 93.92. The global dollar index, a gauge that measures the greenback against a basket of six major currencies, hit its lowest since early May 2016 after the news of Scaramucci's departure. The index inched up on Tuesday to 92.887 from the previous close of 92.863. 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 6.8525, 2.01 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0351 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.7148 6.7283 0.20% Spot yuan 6.7187 6.729 0.15% Divergence from 0.06%

midpoint*

Spot change YTD 3.39% Spot change since 2005 23.19%

revaluation

Key indexes:

Item Current Previous Change Thomson 93.71 93.92 -0.2

Reuters/HKEX CNH index

Dollar index 92.887 92.863 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 6.7215 -0.04% * Offshore 6.8525 -2.01%

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 Richard Borsuk)