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Yuan slips on corporate demand for weakened dollar

SHANGHAI, March 7 (Reuters) - China's yuan slipped against the U.S. dollar on Wednesday as weakness in the greenback globally spurred demand for it from companies. The dollar extended its latest retreat after Gary Cohn, an advocate for free trade, announced his resignation as top U.S. economic adviser, fanning fears that President Donald Trump will go ahead with tariffs and risk a trade war.

Traders said the impact of possible tariffs on China remained a focus, but some still expect the Federal Reserve to raise U.S. interest rates three or four times this year, bolstering the dollar. Prior to Wednesday's market opening, the People's Bank of China set the midpoint rate at 6.3294 per dollar, 92 pips or 0.15 percent stronger than Tuesday's fix of 6.3386. In the spot market, the onshore yuan opened at 6.3287 per dollar and was changing hands at 6.3270 at midday, 170 pips weaker than the previous late session close but 0.04 percent firmer than the midpoint. The yuan traded in a wider range on Wednesday. Traders expect no significant changes for the currency during the annual meeting of China's parliament, which started in Beijing on Monday and ends on March 20. A Reuters poll of nearly 60 foreign exchange analysts taken March 1-6 showed an expectation the yuan will weaken to 6.40 per dollar in six months and trade at that level in a year. That compared with the previous poll's median of 6.44 for a year hence. The Chinese yuan has gained around 2.8 percent to the dollar so far this year, after rising 6.8 percent in 2017. Later this month, China's central bank will probably have to respond to an expected U.S. interest rate rise at a sensitive time as naming of a new governor is due. Separately, China is due to release its February foreign exchange reserves data later on Wednesday. Economists polled by Reuters expected the reserves to drop by $1 billion last month to $3.160 trillion, snapping a 12-straight-month expansion. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.87, firmer than the previous day's 96.85. The global dollar index fell to 89.503 from the previous close of 89.618. The offshore yuan was trading 0.07 percent firmer than the onshore spot at 6.3225 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 6.454, 1.93 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0357 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.3294 6.3386 0.15% Spot yuan 6.327 6.31 -0.27% Divergence from -0.04%

midpoint*

Spot change YTD 2.84% Spot change since 2005 30.81%

revaluation

Key indexes:

Item Current Previous Change Thomson 96.87 96.85 0.0

Reuters/HKEX CNH index

Dollar index 89.503 89.618 -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 6.3225 0.07% * Offshore 6.454 -1.93%

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 Richard Borsuk)