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China's yuan inches up on dollar weakness, set for best week in a month

SHANGHAI, Nov 17 (Reuters) - China's yuan inched up against the U.S. dollar on Friday, supported by a slide in the greenback and on track for its best week in a month, though gains were capped by rising corporate dollar demand. The dollar slipped after a Wall Street Journal report said investigators into possible Russian interference in the 2016 U.S. presidential election issued a subpoena to campaign officials last month. In addition to the political headlines, traders said progress around U.S. tax reforms remains a primary risk for the currency. The global dollar index, a gauge that measures the unit's strength against six other currencies, fell to 93.6 from the previous close of 93.932. Prior to the market opening on Friday, the People's Bank of China set its midpoint rate at 6.6277 per dollar, 9 pips firmer than the previous fix of 6.6286 on Thursday. Traders said Friday's official fixing largely matched their forecasts. In the spot market, the onshore yuan opened at 6.6250 per dollar and was changing hands at 6.6266 at midday, 17 pips firmer than the previous late session close. If the yuan ends the late night session at the midday level, it would have gained 0.22 percent of its value against the dollar for the week - its best weekly performance since mid-October. The yuan softened around 0.05 percent a week earlier. Traders said corporate dollar flows and the greenback's movements were the two key factors determining the spot yuan rate. A trader at a Chinese bank said corporate demand for the greenback capped the gains in the Chinese currency on Friday morning. Some market participants say dollar demand by companies and households usually picks up at the end of the year, which would pile pressure on the yuan. However, they do not expect heavy depreciation in the Chinese currency in coming weeks. Separately, official data showed on Thursday that China's commercial banks purchased a net $2.8 billion of foreign exchange in October, compared with a net purchase of $0.3 billion in September. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.32, weaker than the previous day's 95.43. The offshore yuan was trading 2 pips weaker than the onshore spot at 6.6268 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 6.77, 2.10 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6277 6.6286 0.01% Spot yuan 6.6266 6.6283 0.03% Divergence from -0.02%

midpoint*

Spot change YTD 4.83% Spot change since 2005 24.90%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.32 95.43 -0.1

Reuters/HKEX CNH index

Dollar index 93.6 93.932 -0.4

*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 6.6268 0.00% * Offshore 6.77 -2.10%

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)