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China's yuan edges up, set to gain over 1 pct on week

SHANGHAI, Oct 13 (Reuters) - China's yuan firmed against the U.S. dollar on Friday and looked set to strengthen more than 1 percent for the week, supported by dollar weakness, traders said. However, its gains were capped by steady corporate dollar demand. The Chinese currency has seen uncharacteristically high volatility in recent months. A fresh crackdown on speculators in late May and a weak dollar triggered a strong rally through early September, when authorities suddenly allowed the yuan to weaken. Some traders believe the reversal was in response to complaints from Chinese exporters who were facing losses after the yuan's rapid run-up. Prior to the market opening on Friday, the People's Bank of China lowered its official yuan midpoint for the first time in four days to 6.5866 per dollar, 58 pips or 0.09 percent weaker than the previous fix of 6.5808 on Thursday. Friday's official guidance rate was largely in line with market expectations, traders said, as happened on Thursday. But market participants pointed out the official fixings had been set at firmer-than-expected levels in the previous few sessions, possibly in a signal that authorities wanted to temper recent losses. In the spot market, the yuan opened at 6.5890 per dollar and was changing hands at 6.5782 at midday, 115 pips firmer than the previous late session close and 0.13 percent stronger than the midpoint. If spot yuan closes the late night session at the current level, it would have strengthened 1.13 percent against the greenback this week. The global dollar index, a gauge that measures dollar strength against six other currencies, fell to 92.995 at midday from the previous close of 93.057. The market would be paying close attention to the U.S. inflation data due late Friday, as that could provide more clues on the next monetary tightening. The offshore yuan also lent some support to its onshore counterpart, traders said. The CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city's Treasury Markets Association, rose to 2.72182 percent for overnight contracts on Friday, the highest level in two weeks, more than 23 percentage points higher than the previous fix of 2.48700 percent. The offshore yuan was trading 0.12 percent stronger than the onshore spot at 6.5706 per dollar as of midday. Better-than-expected September trade data had limited impact on yuan trade. China's imports and exports grew at a faster pace in September than in the previous month, suggesting the world's second-biggest economy is still expanding at a healthy clip despite widespread forecasts of an eventual slowdown.

ING's Greater China economist Iris Pang said in a note prior to data release on Friday that she did not belive the strong yuan was hurting amid stronger global demand. She expects the onshore yuan to trade at 6.5 per dollar at year-end.

The yuan market at 0416 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.5866 6.5808 -0.09% Spot yuan 6.5782 6.5897 0.17% Divergence from -0.13%

midpoint*

Spot change YTD 5.60% Spot change since 2005 25.82%

revaluation

Key indexes:

Item Current Previous Change Thomson 96.12 95.99 0.1

Reuters/HKEX CNH index

Dollar index 92.995 93.057 -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 6.5706 0.12% * Offshore 6.7245 -2.05%

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 Kim Coghill)