Yuan rises to 2-1/2 year high on strong fixing, dollar selling

SHANGHAI, Feb 7 (Reuters) - China's yuan rose to a new 2-1/2-year high against the U.S. dollar on Wednesday, driven by a much stronger yuan midpoint and heavy corporate greenback selling. Both the official guidance rate and spot yuan rate advanced to their highest level since Aug. 11, 2015, when China rattled global markets with a sharp 2 percent one-off currency devaluation. In global markets, the dollar steadied against a basket of other major currencies on Wednesday as stock markets appeared to be regaining some footing after heavy selling and wild volatility in the last few days. Prior to the market opening on Wednesday, the People's Bank of China (PBOC) lifted its official yuan midpoint to 6.2882 per dollar, 190 pips, or 0.3 percent, firmer than Tuesday's fix of 6.3072. In the spot market, the yuan opened at 6.2793 and rose to a high of 6.2519 at one point in morning trade. But traders said it faced some resistance as it approached the 6.25 level and gave up some of the gains. As of midday, it was changing hands at 6.2565, 245 pips firmer than the previous late session close and 0.50 percent stronger than the midpoint. Corporate dollar selling remained heavy, giving additional lift to the yuan, traders said, while buying interest in the greenback was tepid. One Shanghai-based trader at a Chinese bank said attention was turning to liquidity conditions and the risk of sharper volatility heading into the long Lunar New Year holiday, when demand for cash surges and trading volumes are much thinner, leaving prices more vulnerable to big swings. The week-long holiday starts on Feb. 15. China's foreign exchange regulator said on Tuesday that the government will promote capital account convertibility this year and pay attention to exchange rate risk management. And the central bank said on the same day that it would steadily push forward yuan internationalisation while keep the currency basically stable. China is due to release January foreign exchange reserves data later in the session, with another very modest gain expected. Economists polled by Reuters poll forecast reserves likely increased $28 billion to $3.168 trillion, rising for the 12th month in a row amid a stronger yuan and as tight regulations continue 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 98.26, firmer than the previous day's 97.82. The global dollar index fell to 89.578 from the previous close of 89.585. The offshore yuan was trading 0.13 percent weaker than the onshore spot at 6.2645 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 6.392, 1.62 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0414 GMT:


Item Current Previous Change PBOC midpoint 6.2882 6.3072 0.30% Spot yuan 6.2565 6.281 0.39% Divergence from -0.50%


Spot change YTD 4.00% Spot change since 2005 32.29%


Key indexes:

Item Current Previous Change Thomson 98.26 97.82 0.5

Reuters/HKEX CNH index

Dollar index 89.578 89.585 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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.2645 -0.13% * Offshore 6.392 -1.62%

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)