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China's yuan dips but Beijing seen keeping tight grip before party congress

SHANGHAI, Sept 5 (Reuters) - China's yuan moved more sharply than usual on Tuesday, at one point strengthening enough for 2017's gains to more than erase last year's losses, but then it fell back late in the day. The difference between the day's strongest and weakest points was 399 pips, while on most recent days the range has been around 300 pips. Despite Tuesday's bigger range, the yuan was not close to reaching either end of its daily trading band. Traders says that authorities want the yuan to be stable ahead of a key Communist Party meeting in mid-October, and will keep a tight grip on movement. Prior to market opening on Tuesday, the People's Bank of China raised its official yuan midpoint for the seventh straight session, to 6.5370 per dollar, the strongest level since May 18, 2016. In the spot market, the onshore yuan opened at 6.5414 per dollar and strengthened to a high of 6.5150, taking year-to-date gains to as much as 6.63 percent, compared with the roughly 6.5 percent loss suffered in 2016. But late in the day, the yuan weakened significantly, which traders credited to gains by the dollar. At the 4.30 p.m. (0830 GMT) domestic close, the yuan settled at 6.5516 - a weakening for the day, from 6.5200 at local close on Monday, that left the year-to-date gain at 6.03 percent. The market also has an evening session lasting until 11:30 p.m. Market watchers expect that the recent strong momentum in the Chinese currency would likely be maintained before the once-every-five-years congress of the Communist Party, which will start October 18. "The CNY strength is occurring at the same time as rising geopolitical tension in the Korean peninsula, and is a key indication that the Chinese authorities are displaying commitment to maintain financial market stability," said Christy Tan, head of Asia market strategy and research at National Australia Bank said. Economists at Citi said in a note on Tuesday morning that investors would look to the central bank to judge whether the pace of yuan rallies needed to be "attenuated." "It would not be unusual for authorities to seek to calm market sentiment in some such manner," they said.

The yuan market at 0830 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.537 6.5668 0.46% Spot yuan 6.5516 6.532 -0.30% Divergence from 0.22%

midpoint*

Spot change YTD 6.03% Spot change since 2005 26.33%

revaluation

Key indexes:

Item Current Previous Change Thomson 96.09 96.39 -0.3

Reuters/HKEX CNH index

Dollar index 92.686 92.635 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 6.5583 -0.10% * Offshore 6.699 -2.42%

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 Andrew Galbraith; Editing by Richard Borsuk)