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China's yuan pulls back from 9-1/2-month high after modest dollar gains

SHANGHAI, Aug 2 (Reuters) - China's yuan pulled back from its strongest in nine-and-a-half months on Wednesday, after the central bank lowered its official guidance following a modest bounce in the dollar. The People's Bank of China set the midpoint rate at 6.7205 per dollar prior to market open, weaker than the previous fix 6.7148. In the spot market, the yuan opened at 6.7258 per dollar and was changing hands at 6.7263 by midday, easing off its best levels since October struck on Tuesday. The renminbi is 53 pips weaker than the previous late session close and 0.09 percent softer than the midpoint. Traders said market supply and demand were balanced in morning trade. The yuan continued tracking the dollar's movements, with the market divided around 6.7250 per dollar. One trader said some institutions were liquidating their dollar positions around that level to reduce exchange losses in the wake of a slight recovery in the U.S. currency. Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, cited the risk of a potential rebound in the dollar that could reverse the yuan's recent rally that had been "largely driven by the dollar's weakness". The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.83, firmer than the previous day's 93.77. The global dollar index rose to 93.071 from the previous close of 93.043. The offshore yuan was trading 0.09 percent weaker than the onshore spot at 6.7326 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 6.852, 1.92 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0402 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.7205 6.7148 -0.08% Spot yuan 6.7263 6.721 -0.08% Divergence from 0.09%

midpoint*

Spot change YTD 3.28% Spot change since 2005 23.05%

revaluation

Key indexes:

Item Current Previous Change Thomson 93.83 93.77 0.1

Reuters/HKEX CNH index

Dollar index 93.071 93.043 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 6.7326 -0.09% * Offshore 6.852 -1.92%

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)