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Yuan eases, but set for best week since mid-October

SHANGHAI, Nov 24 (Reuters) - China's yuan weakened against the U.S. dollar on Friday, with strong corporate demand supporting the greenback but the Chinese currency is on course for its best week in more than a month. Prior to market opening, the People's Bank of China (PBOC) set the official yuan midpoint at its strongest in six weeks at 6.5810 per dollar. The central bank's guidance rate breached the key 6.6 level, underpinned by a robust spot yuan performance the day earlier. But traders said corporates' bargain hunting for the dollar countered the stronger midpoint. The midpoint was 211 pips or 0.32 percent firmer than the previous fix of 6.6021 per dollar. Market participants said the official fix, the firmest since Oct. 12, largely matched what their models had suggested. "The yuan is becoming a fantastic benchmark for gauging U.S. dollar sensitivity as the PBOC guidance is capturing the broader G-10 move well, as the pair took another leg lower on the back of the dovish FOMC," Stephen Innes, head of trading in Asia Pacific for OANDA said in a note on Friday. In the spot market, the onshore yuan opened at 6.5730 per dollar and was changing hands at 6.5890 at midday, 40 pips weaker than the previous late session close and 0.12 percent softer than the midpoint. If the yuan ends the late night session at the midday level, it would have gained 0.6 percent against the dollar for the week - its best weekly performance since mid-October. The yuan strengthened around 0.19 percent a week earlier. Traders said market sentiment remained cautious in early trade, but some corporate clients rushed to take advantage of the cheaper dollar which dragged spot yuan lower. The dollar was under pressure in overseas market after the latest minutes from the Federal Reserve's policy meeting showed concerns over low inflation in the United States. The global dollar index, a gauge that measures the unit's strength against six other major currencies, fell to 93.18 from the previous close of 93.22. And the dollar index is set for a weekly loss. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.51, firmer than the previous day's 95.41. The offshore yuan was trading 0.02 percent stronger than the onshore spot at 6.5877 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 6.7385, 2.34 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 6.581 6.6021 0.32% Spot yuan 6.589 6.585 -0.06% Divergence from 0.12%

midpoint*

Spot change YTD 5.43% Spot change since 2005 25.61%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.51 95.41 0.1

Reuters/HKEX CNH index

Dollar index 93.18 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 6.5877 0.02% * Offshore 6.7385 -2.34%

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 Jacqueline Wong)