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China's yuan inches up, Fed's policy meeting in focus

SHANGHAI, Dec 11 (Reuters) - China's yuan edged up against the dollar on Monday, reflecting a firmer midpoint in cautious trading as investors looked to the Federal Reserve policy meeting clues on the pace of U.S. monetary tightening next year. The Fed is widely expected to raise interest rates at the end of a two-day policy meeting on Wednesday, and is seen as likely to hike a further two to three times in 2018. Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.6152 per dollar, snapping 10 straight days of weaker settings, 66 pips or 0.1 percent firmer than Friday's fix of 6.6218. In the spot market, the onshore yuan opened at 6.6190 per dollar and was changing hands at 6.6160 at midday, 80 pips firmer than the previous late session close. Traders said the yuan was hemmed in a tight range on Monday morning, with the spot rate swinging around the official midpoint. "The yuan remains handcuffed by domestic economic uncertainty but as we enter the year-end stretch run a resurgent USD is likely to present some headwinds to the RMB complex as well," Stephen Innes, head of trading for Asia-Pacific at OANDA, wrote in a note to clients. A Shanghai-based trader at a foreign bank said that besides the Fed, the domestic market was looking to this month's Central Economic Work Conference, which is expected to signal the government's broad policy stance, including economic goals for next year. The hard targets will not be announced until March. The trader added that the yuan's outlook will partially be influenced by the conference outcome. The yuan weakened around 0.05 percent against the dollar last week, but on a trade-weighted basis it edged up about 0.2 percent against a basket of currencies of trading partners, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 94.59 on Friday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.48, weaker than the previous day's 95.49. The global dollar index fell to 93.832 from the previous close of 93.901. The offshore yuan was trading 0.05 percent weaker than the onshore spot at 6.6193 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 6.7665, 2.24 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0412 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6152 6.6218 0.10% Spot yuan 6.616 6.624 0.12% Divergence from 0.01%

midpoint*

Spot change YTD 5.00% Spot change since 2005 25.10%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.48 95.49 0.0

Reuters/HKEX CNH index

Dollar index 93.832 93.901 -0.1

*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 6.6193 -0.05% * Offshore 6.7665 -2.24%

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 Shri Navaratnam)