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China's yuan extends blistering rally, has gained 7.5 pct vs dollar in 2017

SHANGHAI, Sept 8 (Reuters) - China's yuan on Friday extended a blistering rally that has let it gain 7.5 percent against the dollar this year, more than erasing the 6.5 percent loss it suffered in 2016. The Chinese currency, coming back into the global spotlight, on Thursday blew past the key 6.5 per dollar level for the first time since May 2016, and on Friday it again had a hefty gain. Spot yuan surged to 6.435 before weakening. At the 4:30 pm (0830 GMT) official local close, the yuan was at 6.4617, the highest such close since April 2016. The market also has a night session, lasting until 11.30 pm Shanghai time (1530 GMT). If the spot yuan finishes the night session at the current level, it will have gained around 1.5 percent this week, the highest weekly gain since the currency was revalued in July 2005. In the previous week, the yuan strengthened around 1.4 percent. The Chinese currency has risen more than 2,600 pips since the beginning of the August, an unusual run given it normally moves in a narrow range. Chinese policymakers are beginning to worry about the rallying yuan as exporters come under strain, policy insiders told Reuters, a sign that the currency's gains might lose steam as Beijing prepares for a crucial Communist Party gathering in October. Prior to Friday's market opening, the People's Bank of China raised its official yuan midpoint for the 10th straight session, to 6.5032 per dollar, the strongest since May 12, 2016. The last time the midpoint had a stronger fixing for 10 consecutive days was in December 2010. But Friday's midpoint - 237 pips or 0.36 percent firmer than the previous one of 6.5269 per dollar - was weaker than market expectations, traders said. Their forecasts had suggested the guidance might be firmer than 6.5 per dollar. The onshore spot yuan opened at 6.4800 per dollar and was at 6.4617 by the domestic close, 233 pips stronger than the previous late session close and 0.64 percent firmer than the midpoint. As of 0830 GMT, the offshore yuan was trading 0.18 percent weaker than its onshore counterpart at 6.4731 per dollar. On Friday morning, official data showed that China's exports rose by 5.5 percent from a year earlier, below market expectations, while imports beat forecasts, growing 13.3 percent last month. The August trade data had no impact on the spot yuan trade, according to market participants. But analysts said the soft China export figures should highlight the overshooting risk in the yuan.

The yuan market at 0830 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.5032 6.5269 0.36% Spot yuan 6.4617 6.485 0.36% Divergence from -0.64%

midpoint*

Spot change YTD 7.51% Spot change since 2005 28.09%

revaluation

Key indexes:

Item Current Previous Change Thomson 96.55 96.41 0.1

Reuters/HKEX CNH index

Dollar index 91.253 91.663 -0.5

*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 6.4731 -0.18% * Offshore 6.5965 -1.41%

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 David Stanway; Editing by Richard Borsuk)