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China's yuan inches up slightly as investors eye leadership meeting

SHANGHAI, Oct 16 (Reuters) - China's yuan inched up marginally against the U.S. dollar on Monday, guided by a slightly stronger central bank fixing and as investors remained cautious ahead of a key leadership meeting and economic data this week. With the National Congress of the Communist Party kicking off on Wednesday, market participants expect a certain degree of calm in the yuan trade. Chinese authorities are expected to push for stability as any major volatility in the exchange rate or the economy would be unwelcome ahead of and during the major political event. Prior to market opening on Monday, the People's Bank of China (PBOC) lifted its official yuan midpoint slightly to 6.5839 per dollar, 27 pips or 0.04 percent firmer than the previous fix of 6.5866 on Friday. In the spot market, the yuan opened at 6.5810 per dollar and was changing hands at 6.5765 at midday, 40 pips firmer than the previous late session close and 0.11 percent stronger than the midpoint. Traders said the spot yuan's movement was largely determined by the official guidance rate and bank clients' flows on Monday morning. They expect this to persist for the week as Beijing holds the leadership meeting. They added that September inflation data, released on Monday morning, had limited impact on the yuan. Separately, the central bank governor Zhou Xiaochuan said China's economy is expected to grow 7 percent in the second half of this year, accelerating from the first six months and defying widespread expectations for a slowdown. China is in the midst of publishing September data, culminating in its third-quarter gross domestic product number on Thursday. The yuan strengthened around 1.1 percent against the greenback last week, but on a trade-weighted basis, the yuan gained only 0.7 percent against a basket of currencies of trading partners in the same period, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 95.00 on Friday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.09, firmer than the previous day's 96.02. The global dollar index rose to 93.143 from the previous close of 93.091. The offshore yuan was trading 0.11 percent firmer than the onshore spot at 6.569 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 6.723, 2.07 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0420 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.5839 6.5866 0.04% Spot yuan 6.5765 6.5805 0.06% Divergence from -0.11%

midpoint*

Spot change YTD 5.63% Spot change since 2005 25.85%

revaluation

Key indexes:

Item Current Previous Change Thomson 96.09 96.02 0.1

Reuters/HKEX CNH index

Dollar index 93.143 93.091 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 6.569 0.11% * Offshore 6.723 -2.07%

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 Sam Holmes)