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China's yuan set for the first weekly loss in over a month after strong rally

SHANGHAI, Aug 18 (Reuters) - China'a yuan eased against the U.S. dollar on Friday and looked set to post its first weekly loss since early July, after a strong multi-month rally. Prior to the market open, the People's Bank of China (PBOC) set the midpoint rate at 6.6744 per dollar prior, 35 pips or 0.05 percent weaker than the previous fix 6.6709. In the spot market, the yuan opened at 6.6750 per dollar and was changing hands at 6.6771 at midday, 36 pips weaker than the previous late session close and 0.04 percent softer than the midpoint. If the spot yuan finishes at the current level at the late night close on Friday, it would have lost nearly 0.2 percent against the dollar on the week, its first such loss since the week ended on July 7. But the yuan has strengthened for three consecutive months from May till July, an unusual run for China's currency. The rally, which has been fueled largely by a sharp reversal in the dollar and a string of stronger PBOC fixings, has extended the yuan's gains to 4 percent so far this year, after it fell around 6.5 percent last year in the face of dollar strength. Traders said slightly stronger corporate dollar demand had also dragged the spot rate lower than the fixing. Separately, China's foreign exchange regulator said on late Thursday that China will maintain market stability while increasing the flexibility of the yuan exchange rate.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.77, firmer than the previous day's 94.75. The global dollar index rose to 93.623 from the previous close of 93.622. The offshore yuan was trading 0.11 percent weaker than the onshore spot at 6.6842 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 6.835, 2.35 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0341 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6744 6.6709 -0.05% Spot yuan 6.6771 6.6735 -0.05% Divergence from 0.04%

midpoint*

Spot change YTD 4.04% Spot change since 2005 23.95%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.77 94.75 0.0

Reuters/HKEX CNH index

Dollar index 93.623 93.622 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 6.6842 -0.11% * Offshore 6.835 -2.35%

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 Kim Coghill)