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China's yuan edges up, set for a winning week

SHANGHAI, Feb 23 (Reuters) - China's yuan strengthened against the dollar in post-holiday thin trade on Friday, supported by a slightly stronger official guidance rate. The Chinese currency is on course for marginal gains in the holiday-shortened week. While trading in the domestic foreign exchange markets resumed on Thursday, many market participants remained on holiday. The dollar inched up against a basket of major currencies on Friday, trimming earlier losses, as nvestors gingerly dipped their toes back into riskier assets amid rapidly shifting views on U.S. monetary policy. The global dollar index, a gauge that measures the unit's strength against six other major currencies, rose to a 10-day high of 90.235 on Thursday before its rally ran out of steam. The index stood at 89.871 as of midday. Prior to market opening, the People's Bank of China (PBOC) set the yuan midpoint rate at 6.3482 per dollar, 48 pips or 0.08 percent firmer than the previous fix of 6.3530. In the spot market, the onshore yuan opened at 6.3490 per dollar and was changing hands at 6.3382 at midday, 183 pips firmer than the previous late session close. If the onshore spot yuan finishes the late night session at the midday level, that would put it 0.1 percent ahead of the dollar for the week. The yuan weakened about 0.8 percent last week. Trading was thin on Friday, with volume at $4.143 billion as of midday. The half-day volume usually reaches around $15 billion on normal trading days. With many corporate clients and market participants still on holiday, the Chinese currency looks set to continue tracking the dollar in the near term, traders said. Separately, the PBOC resumed fund injection through its open market operations after the Lunar New Year holiday following a 16-trading-day hiatus of skipping reverse repos. The PBOC injected a total of 580 billion yuan ($91.51 billion) on a net basis on Thursday and Friday to keep liquidity ample in the financial markets post-holiday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.96, weaker than the previous day's 97.07. The offshore yuan was trading 0.06 percent firmer than the onshore spot at 6.3346 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 6.467, 1.84 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0408 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.3482 6.353 0.08% Spot yuan 6.3382 6.3565 0.29% Divergence from -0.16%

midpoint*

Spot change YTD 2.66% Spot change since 2005 30.58%

revaluation

Key indexes:

Item Current Previous Change Thomson 96.96 97.07 -0.1

Reuters/HKEX CNH index

Dollar index 89.871 89.736 0.2

*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 6.3346 0.06% * Offshore 6.467 -1.84%

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. .

($1 = 6.3381 Chinese yuan renminbi)

(Reporting by Winni Zhou and John Ruwitch Editing by Shri Navaratnam)