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Yuan leaps to 3-week high in wake of dollar weakness and stronger fix

SHANGHAI, Nov 23 (Reuters) - China's yuan jumped to its highest in three weeks against the dollar on Thursday, breaching a key threshold, after a much stronger official fixing and a tumble for the greenback globally. The yuan breached 6.6 to the dollar for the first time since Nov. 2. The dollar was pressured by weak U.S. data and minutes from the Federal Reserve's Oct. 31 - Nov. 1 policy meeting, which showed concerns over low inflation. The global dollar index, measuring its strength against six other major currencies, fell to 93.185 as of midday, the weakest level in a month. Prior to market opening on Thursday, the People's Bank of China set its official yuan midpoint at the strongest level since Oct. 18, at 6.6021 per dollar. It was the biggest one-day strengthening in percentage terms since Oct. 11. The official midpoint was 269 pips or 0.41 percent firmer than Wednesday's fix of 6.6290 per dollar. The strong fixing helped spot yuan breach the key 6.6 per dollar level in early trade. The onshore yuan opened at 6.6018 and was changing hands at 6.5935 at midday, 207 pips firmer than the previous late session close and 0.13 percent firmer than the midpoint. "The Chinese yuan is more aligned with the U.S. dollar's trend in the major currencies, not just its Asian counterparts," Philip Wee, FX strategist at DBS Group Research said in a note on Thursday morning. A dealer at a foreign bank in Shanghai said the yuan would likely remain between 6.5 and 6.7 per dollar for the remainder of 2017 as seasonal dollar demand by households and companies would pick up for year-end financing needs. Liquidity tightness in the offshore yuan market eased on Thursday with its borrowing costs falling back to normal level. The CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR) was set by the city's Treasury Markets Association (TMA) at 2.75967 percent for overnight contracts on Thursday. That was more than 3.2 percentage points lower than the previous fix of 5.97968 percent, the highest since June 2. The offshore yuan was trading 0.02 percent firmer than the onshore spot at 6.5919 per dollar. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.43, firmer than the previous day's 95.42. 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 6.7425, 2.08 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0408 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6021 6.629 0.41% Spot yuan 6.5935 6.6142 0.31% Divergence from -0.13%

midpoint*

Spot change YTD 5.36% Spot change since 2005 25.53%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.43 95.42 0.0

Reuters/HKEX CNH index

Dollar index 93.185 93.22 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

from onshore

Offshore spot yuan 6.5919 0.02% * Offshore 6.7425 -2.08%

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 Richard Borsuk)