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Yuan rises to 2-week high as trade war fears dog dollar

SHANGHAI, March 15 (Reuters) - China's yuan rose to its highest level in more than two weeks against the dollar on Thursday on a much strengthened official fixing, following broad weakness in the greenback as the U.S. steps up plans for punitive trade measures. The Trump administration is pressing China to cut its trade surplus with the United States by $100 billion, a White House spokeswoman said on Wednesday, clarifying a tweet last week from President Donald Trump. The request comes as the Trump administration is said to be preparing tariffs on imports of up to $60 billion worth of Chinese information technology, telecoms and consumer products as part of a U.S. investigation into China's intellectual property practices. Traders said Washington's trade surplus request did not affect the yuan on Thursday, while adding that shrinkage in China's current account surplus could put some depreciation pressure on the currency in the longer term. Prior to the market opening, the People's Bank of China set the midpoint rate at 6.3141 per dollar, 64 pips or 0.1 percent firmer than the previous fix 6.3205. Thursday's fixing was the strongest since Feb.12. In the spot market, the onshore yuan opened at 6.3079 per dollar and rose to a high of 6.3054 at one point in morning trade, the strongest level since Feb.27. As of midday, the onshore spot rate was changing hands at 6.3124, 30 pips firmer than the previous late session close and 0.03 percent stronger than the midpoint. However, traders said gains were limited as corporate clients' are growing more keen to buy the greenback as the rate approaches the psychologically important 6.3 per dollar level. Market participants are waiting for next week's U.S. Federal Reserve's monetary policy meeting for more clues on the dollar's direction. The Fed is widely expected to raise rates but traders are more interested in any signals on the pace of tightening for the rest of the year. Some analysts suspect China's central bank may once again follow suit with a marginal but symbolic increase in money market rates as it presses ahead with a campaign to reduce risks in the financial system. China's central bank purchased a net 4.1 billion yuan worth of foreign exchange in February, according to Reuters calculations based on central bank data released on Wednesday.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.08, firmer than the previous day's 97.01. The global dollar index fell to 89.651 from the previous close of 89.704. The offshore yuan was trading 0.10 percent firmer than the onshore spot at 6.3064 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 6.4365, 1.90 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0421 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.3141 6.3205 0.10% Spot yuan 6.3124 6.3154 0.05% Divergence from -0.03%

midpoint*

Spot change YTD 3.08% Spot change since 2005 31.11%

revaluation

Key indexes:

Item Current Previous Change Thomson 97.08 97.01 0.1

Reuters/HKEX CNH index

Dollar index 89.651 89.704 -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 6.3064 0.10% * Offshore 6.4365 -1.90%

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)