* C.bank purchased 850 million yuan in Sept
* Commercial banks' first net FX purchase in 28 months
* China recorded $20 bln in net inflow in Sept - analyst
(Adds commercial bank FX purchase, analyst comment) BEIJING, Oct 19 (Reuters) - China's central bank recorded a net purchase of foreign exchange for the first time in nearly two years in September, as capital outflows taper off and the yuan strengthens. Capital flight had been seen as a major risk for China at the start of the year, but a combination of tighter capital controls and a faltering dollar helped the yuan stage a strong turnaround, bolstering confidence in the economy. The People's Bank of China purchased a net 850 million yuan ($128.21 million) worth of foreign exchange in September, according to Reuters calculations based on central bank data released on Thursday. That would mark its first monthly net purchase since October 2015, and suggest a major policy victory for authorities after a long battle to stabilise the country's currency. The figure compares with sales of 821 million yuan in foreign exchange in August and reverses trends in recent years of large foreign exchange sales as China sought to backstop the yuan against large depreciation pressure. China's commercial banks also turned to net purchases in September, buying a net $300 million of foreign exchange during the month, compared with a net sale of $3.8 billion in August, the foreign exchange regulator said on Thursday. It was the first month commercial banks' recorded net foreign exchange purchases in 28 months, according to a Reuters calculation. "We think net capital inflows were above $20 billion in September," said Iris Pang, Greater China economist at ING in Hong Kong. ING estimates inflows turned positive in August at about $2 billion. "We think net capital inflows will not be a one-off; it will be continuous," said Pang, citing government controls on outflows and yuan appreciation as factors contributing to inflows. Beijing burned through nearly $320 billion of reserves last
year and the yuan still fell about 6.5 percent
against the surging dollar, its biggest annual drop since 1994.
But market sentiment has flipped in recent months and the yuan has gained nearly 5 percent against the dollar so far this year. Pan Gongsheng, chief of China's forex regulator, said on Thursday on the sidelines of a Communist Party congress that the foreign exchange market is currently stable. With the strong rebound in the yuan, some analysts believe China may be close to seeing its first sustained net capital inflows in years, albeit at modest levels. ($1 = 6.6300 Chinese yuan)
(Reporting by Beijing Monitoring Desk and Elias Glenn; Editing