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China's yuan inches lower on dollar strength, set to finish week flat

SHANGHAI, Dec 8 (Reuters) - China's yuan inched lower against the U.S. dollar on Friday, reflecting strength in the greenback in global markets, but was on course to finish the week little changed. The dollar inched higher as the passage of a bill to temporarily extend U.S. government funding raised investors' optimism that a tax reform bill would also pass. Forex traders took stronger-than-expected November trade data in stride. China's exports and imports unexpectedly accelerated last month after slowing in October, an encouraging sign for the world's second-biggest economy which has started to slow in the face of a government crackdown on debt risks and factory pollution. Prior to the market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate lower for the 10th straight day at 6.6218 per dollar, weaker than the previous fix of 6.6195. The streak of weaker official fixes is the longest since mid-November. Friday's guidance rate was also the weakest since Nov. 22. In the spot market, the onshore yuan opened at 6.6180 per dollar and was changing hands at 6.6178 at midday, 38 pips weaker than the previous late session close. If the yuan ends the late night session at the midday level, it would have finished the week largely flat. It eased around 0.3 percent against the dollar last week. Traders said some institutions were taking advantage of tight price ranges to make multiple intraday trades for quick profits, pushing daily trading volumes higher. Such a pattern was also seen on Thursday. The daily trading volume stood at $16.004 billion as of midday. Some market participants were also awaiting the U.S. non-farm payrolls report later in the day for further clues for the dollar's movements in the near term. A trader at a foreign bank in Shanghai said he expected the yuan to remain in range bound trade for the rest of the year, while adding markets will pay close attention to any news from the Central Economic Work Conference later this month which could set the tone for the currency next year. The work conference typically sets economic targets and policy goals for the coming year, though the hard targets are not usually announced until March. Separately, China's foreign exchange reserves rose for a 10th straight month in November, official data showed on Thursday, though slightly less than market expectations, as tight regulations and a strong yuan continued to discourage capital outflows. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.42, firmer than the previous day's 95.36. The global dollar index rose to 93.823 from the previous close of 93.795. The offshore yuan was trading 0.08 percent weaker than the onshore spot at 6.6231 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 6.781, 2.35 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0422 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6218 6.6195 -0.03% Spot yuan 6.6178 6.614 -0.06% Divergence from -0.06%

midpoint*

Spot change YTD 4.97% Spot change since 2005 25.06%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.42 95.36 0.1

Reuters/HKEX CNH index

Dollar index 93.823 93.795 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 6.6231 -0.08% * Offshore 6.781 -2.35%

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 Kim Coghill)