(Adds stock market performance) SHANGHAI, Feb 9 (Reuters) - China's yuan eased against the dollar on Friday and looked set for its first weekly loss in two months, weighed down by a lower official fix for the currency and strong dollar demand ahead of the long Lunar New Year holidays. Broader investor sentiment was also soured by a plunge on China's stock markets, which were on track for their biggest sinlge-day drop in nearly two years, but foreign exchange traders said the turmoil in equities did not directly impact the yuan. The yuan lost 0.6 percent against the dollar on Thursday, its worst daily performance since Sept. 11, 2017, when Beijing removed some measures it had put in place to support the currency. Prior to the market opening on Friday, the People's Bank of China lowered its official yuan midpoint rate to 6.3194 per dollar, 372 pips or 0.59 percent weaker than the previous day's fix of 6.2822. It was the biggest one-day weakening of the guidance rate in percentage terms since Jan.9, 2017, and dragged the spot rate lower. The yuan opened at 6.3212 per dollar and was changing hands at 6.3245 at midday, 60 pips weaker than the previous late session close and 0.08 percent softer than the midpoint. That kept it on course to possibly end the late night session down and book losses for the week, which would snap an eight-week winning streak against the dollar. The yuan gained 0.5 percent last week and is up about 2.9 percent so far this year. It was pulled lower on Friday by rising dollar demand from companies and households, with a trader at a foreign bank in Shanghai saying higher demand for the greenback was seen in both spot and forward markets. 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. Yuan trade was thin, however, and the low volumes amplified the volatility in spot market trading, traders said. The half-day trading volume stood at $5.51 billion on Friday, only one-third of that during the same period on normal trading days. Zhou Hao, analyst at Commerzbank in Singapore, said the yuan's appreciation this year was "probably overdone". "We believe that the CNY appreciation will be only a temporary phenomenon. If history is a guide, there is a limit to any currency movement, especially when China's authorities deem the market expects 'too much'," Zhou said in a note on late Thursday. Separately, traders said January inflation data on Friday, which showed an easing in price pressures, had little sway on markets. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.49, weaker than the previous day's 97.55. The global dollar index rose to 90.273 from the previous close of 90.229. The offshore yuan was trading 0.35 percent weaker than the onshore spot at 6.3464 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 6.482, 2.51 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0424 GMT:
Item Current Previous Change PBOC midpoint 6.3194 6.2822 -0.59% Spot yuan 6.3245 6.3185 -0.09% Divergence from 0.08%
Spot change YTD 2.88% Spot change since 2005 30.86%
Item Current Previous Change Thomson 97.49 97.55 -0.1
Reuters/HKEX CNH index
Dollar index 90.273 90.229 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
Offshore spot yuan 6.3464 -0.35% * Offshore 6.482 -2.51%
*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 Ruwtich; Editing by Shri Navaratnam and Kim Coghill)