SHANGHAI, Sept 7 (Reuters) - China's yuan extended its blistering rally against the faltering U.S. dollar on Thursday after the central bank raised its official guidance rate for the ninth straight session. The Chinese currency has strengthened more than 2,000 pips since the beginning of the August, taking its gain to 6.5 percent so far this year, but its upward momentum has appeared to slow slightly this week, traders said. That has fueled market speculation over how much more authorities will allow the yuan to appreciate, even if the dollar remains weak. While policymakers are keen to bolster market and public confidence heading into a key Communist Party Congress next month, some Chinese exporters have begun to complain of losses caused by the currency's sudden turnaround. Prior to the market opening on Thursday, the People's Bank of China lifted its official yuan midpoint for the ninth trading day in a row to 6.5269 per dollar, the strongest since May 18, 2016. The midpoint has now seen its longest string of firmer settings since late December 2010. But Thursday's midpoint - 42 pips or 0.06 percent firmer than the previous fix of 6.5311 per dollar - was slightly weaker than market expectations, traders said. In the spot market, the yuan opened at 6.5271 per dollar and was changing hands at 6.5226 at midday, 44 pips firmer than the previous late session close and 0.07 percent stronger than the midpoint. But spot yuan stuck to a tight range, and trading volume dropped sharply in the morning, traders said. The daily trading volume stood at $6.976 billion as of 0403 GMT, compared with Wednesday's full-day volume of $26.003 billion. "There was both corporate dollar buying and selling in the market today, unlike the one-way dollar sales earlier," said a trader at a Chinese bank in Shanghai, adding that companies which had sold large amounts of long dollar positions were taking a breather. China is due to release its August foreign exchange reserves data later in the session. Economists polled by Reuters had expected foreign exchange reserves to rise by $19 billion to $3.1 trillion, indicating that the weak dollar and tougher capital controls were continuing to curb capital outflows. "We believe that only once inflows are persistently higher than outflows will the central bank slow down the appreciation speed," ING economist Iris Pang said in a research note, adding that she expects to see small net inflows from August. "Looking at the longer term, we believe that the PBOC would like to keep yuan appreciating, albeit at a slower speed, to keep net inflows positive." Though the Chinese currency has stabilized in recent months and is close to recouping all of its 2016 losses, economists believe tight controls on outflows would likely be kept in place for the foreseeable future. "There won't be significant relaxation in at least two years," Zhao Yang, chief China economist at Nomura International, said at a forum in Shanghai. Zhao said capital controls also supported the goal of reducing leverage at financial institutions, which is among the government's top priorities this year. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.07, weaker than the previous day's 96.15. The global dollar index fell to 92.192 from the previous close of 92.29. The offshore yuan was trading 0.18 percent weaker than the onshore spot at 6.5342 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 6.661, 2.01 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0403 GMT:
Item Current Previous Change PBOC midpoint 6.5269 6.5311 0.06% Spot yuan 6.5226 6.527 0.07% Divergence from -0.07%
Spot change YTD 6.50% Spot change since 2005 26.89%
Item Current Previous Change Thomson 96.07 96.15 -0.1
Reuters/HKEX CNH index
Dollar index 92.192 92.29 -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
Offshore spot yuan 6.5342 -0.18% * Offshore 6.661 -2.01%
*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 David Stanway; Editing by Kim Coghill)