SHANGHAI, Feb 8 (Reuters) - China's yuan weakened against the dollar on Thursday, set for its worst day in more than a year, as the greenback recovered on the back of rising U.S. bond yields. The renminbi fell 1 percent in morning trade, in spite of better-than-expected China trade data, partly aggravated by thin trading volume, but it was trading off those lows by midday. The dollar hovered above its recent lows against major currencies on Thursday, benefitting from the euro's weakness and higher U.S. yields. The dollar index, a gauge that measures the unit's strength against six other major currencies, rose above 90 level for the first time in two weeks. It stood at 90.279 as of midday. China posted solid January imports and exports figures on Thursday morning, but some market participants noted the country's trade surplus had shrunk to the lowest since a rare deficit in February last year. That prompted some concerns that a strong currency may hurt the broad economy, as the yuan rose 3.5 percent against the dollar in January. China's January trade growth easily beat market expectations, with exports rising 11.1 percent from a year earlier and imports surging 36.9 percent, customs data showed on Thursday. Prior to market opening on Thursday, the People's Bank of China (PBOC) lifted its official yuan midpoint to 6.2822 per dollar, a new 2-1/2-year high. Thursday's midpoint was 60 pips, or 0.1 percent, firmer than Wednesday's fix of 6.2882 and was the strongest since Aug. 11, 2015, when China rattled global markets with a sharp 2 percent one-off currency devaluation. In the spot market, the onshore yuan opened at 6.2850 per dollar and was changing hands at 6.3235 at midday, 405 pips weaker than the previous late session close and 0.66 percent softer than the midpoint. If the onshore spot yuan ends the late night session at the midday level it would have lost 0.64 percent against the dollar for the day, its worst daily performance since January 2017. Its offshore counterpart also followed the weakening trend on Thursday. It was trading 0.48 percent softer than the onshore spot at 6.3539 per dollar as of midday. The rebound in the greenback triggered buying interests. Some bank clients including households, who had a wait-and-see attitude, were loading up on dollars on Thursday morning. Households usually purchase dollars ahead of the Lunar New Year holiday for their trips abroad. The week-long holiday starts on Feb. 15 this year. However, multiple traders and analysts said upward pressure on the yuan persisted as some companies were still waiting to liquidate their dollar positions. "CNY appreciation has speeded up notably year-to-date, potentially driven by a step-up in 'short-covering' of the de facto CNY short positions in the form of hoarding unsettled FX proceeds by exporters and underweighting Chinese assets in the global market," China International Capital Corporation (CICC) said in a note on Thursday. CICC expected that such outstanding unsettled foreign exchange proceeds could be around $400 billion to $600 billion. China's foreign exchange reserves rose for a 12th straight month to $3.161 trillion in January, central bank data showed on Wednesday, as further gains in the yuan and tighter regulations 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 97.4, weaker than the previous day's 98.14. 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 6.4825, 3.09 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0421 GMT:
Item Current Previous Change PBOC midpoint 6.2822 6.2882 0.10% Spot yuan 6.3235 6.283 -0.64% Divergence from 0.66%
Spot change YTD 2.90% Spot change since 2005 30.88%
Item Current Previous Change Thomson 97.4 98.14 -0.8
Reuters/HKEX CNH index
Dollar index 90.279 90.255 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
Offshore spot yuan 6.3539 -0.48% * Offshore 6.4825 -3.09%
*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)