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Yuan dips, but set for best month since China took it off peg in 2005

SHANGHAI, Aug 31 (Reuters) - China's yuan weakened slightly on Thursday, taking a breather from its 0.8 percent rise against the U.S. dollar so far this week, as the greenback rebounded after strong economic data. The Chinese currency, which hit more than 14-month highs on Wednesday, has gained around 2 percent so far this month and is on track for the best month since July 2005 when the yuan was revalued and taken off a fixed dollar peg. Prior to the market open on Thursday, the People's Bank of China raised its official yuan midpoint to 6.6010 per dollar, the strongest since June 24, 2016, likely reflecting gains in the spot yuan rate from a day earlier rather than any broad dollar moves, traders said. Thursday's midpoint was 92 pips or 0.14 percent firmer than the previous fix of 6.6102 set on Wednesday. In the spot market, the onshore yuan opened at 6.5974 per dollar and was changing hands at 6.5974 at midday, 8 pips softer than the previous late session close but 0.05 percent firmer than the midpoint. The midday rate was also weaker than the previous official local close, when the yuan settled at 6.5927 per dollar at 0830 GMT on Wednesday. Traders said the yuan was taking a pause after rallies in the past few days and was tracking a rebound in the U.S. currency in early Asian trade. The dollar index, a gauge that measures dollar strength against six other currencies, rose to its highest in nearly a week on Thursday. It stood at 93.008 at midday, compared with the previous close of 92.884. In the domestic market, both traders and companies have become cautious at current levels, said a trader at a foreign bank in Shanghai. "Expectations have changed as market participants had no clue where the (USD/CNY) bottom was," the trader said, adding that traders bargain hunting for cheaper dollars when it breached 6.7 and 6.8 levels were "badly burnt." The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.6, firmer than the previous day's 95.52. The offshore yuan was trading 0.09 percent weaker than the onshore spot at 6.6031 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 6.747, 2.16 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0357 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.601 6.6102 0.14% Spot yuan 6.5974 6.5966 -0.01% Divergence from -0.05%

midpoint*

Spot change YTD 5.29% Spot change since 2005 25.45%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.6 95.52 0.1

Reuters/HKEX CNH index

Dollar index 93.008 92.884 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 6.6031 -0.09% * Offshore 6.747 -2.16%

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)