SHANGHAI, Sept 21 (Reuters) - China's yuan softened against the U.S. dollar on Thursday to its lowest level in more than three weeks, after the U.S. Federal Reserve signaled it may raise interest rates for a third time this year, supporting the greenback. The dollar index against a basket of major rivals rose to a near two-week high after the Fed's policy decision and statement on Wednesday, which revived on-again, off-again market expectations of a December rate rise. Expectations of a more cautious Fed have hobbled the dollar for much of this year, helping boost the yuan by more than 6 percent at one point. While that has staunched a major risk from capital outflows, the currency's fast and furious acceleration has prompted complaints from some Chinese exporters, and is believed to have started to worry authorities enough for them to start tapping the brakes on the gains over the past week. Prior to the market opening on Thursday, the People's Bank of China (PBOC) lowered its official yuan midpoint for a third straight day to 6.5867 per dollar, the weakest level since Sept. 1 and 197 pips or 0.3 percent weaker than the previous fix of 6.5670 on Wednesday. Thursday's official midpoint largely matched market expectations, traders said, and the softer fixing also guided the spot yuan lower in morning trade. The spot market opened at 6.5950 per dollar and briefly breached the psychologically important 6.6 per dollar level in early trade. It slid to a low of 6.6066 at one point, the weakest level since Aug. 29. Market participants said 6.6 remained a resistance level for the market. The move triggered some dollar selling from both traders and companies to prevent spot yuan from falling further. As of midday, the spot yuan was changing hands at 6.5900, 165 pips weaker than the previous late session close and 0.05 percent softer than the midpoint. Traders said the spot yuan was tracking the dollar's movement and such a situation would likely continue in the near term. "We look for further upside of the USD rebound this round as the hawkish Fed had triggered a re-pricing of December rate hike," Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong wrote in a note on Thursday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.68, firmer than the previous day's 95.49. The global dollar index rose to 92.515 from the previous close of 92.508. The offshore yuan was trading 0.03 percent firmer than the onshore spot at 6.5878 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 6.7415, 2.30 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0350 GMT:
Item Current Previous Change PBOC midpoint 6.5867 6.567 -0.30% Spot yuan 6.59 6.5735 -0.25% Divergence from 0.05%
Spot change YTD 5.41% Spot change since 2005 25.59%
Item Current Previous Change Thomson 95.68 95.49 0.2
Reuters/HKEX CNH index
Dollar index 92.515 92.508 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
Offshore spot yuan 6.5878 0.03% * Offshore 6.7415 -2.30%
*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)