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China's yuan eases as companies lift their stocks of dollars

SHANGHAI, March 26 (Reuters) - China's yuan eased against the U.S. dollar on Monday as companies stocked up on the greenback, which was weakened by worries about trade tensions between the world's two biggest economies. The global dollar index, which measures the unit against six other currencies, fell to 89.354 early in the day, the lowest level since Feb. 20. It edged up to 89.401 at midday. Worries about trade strife prompted investors to sell Chinese stocks on Monday, extending losses in the equity market. But yuan traders said the Chinese currency is unlikely to fall much in the near term, and they do not think the government would use a weaker yuan as a weapon in a trade war. The Wall Street Journal, citing sources, reported on Monday that the United States and China have quietly started negotiating to improve U.S. access to Chinese markets.

Prior to market opening, the People's Bank of China (PBOC) set the yuan's midpoint rate at 6.3193 per dollar, 79 pips or 0.13 percent firmer than Friday's fix of 6.3272. In the spot market, the onshore yuan opened at 6.3100 per dollar and at midday was changing hands at 6.3148, or 13 pips weaker than the previous late session close. Some market watchers say that if a full-scale trade war opens, the yuan will feel some appreciation pressure. "The looming trade tension may be viewed by the market as the catalyst for RMB to appreciate further," Tommy Xie, economist at OCBC Bank said in a note on Monday, indicating he thinks China should resist any such pressure. Yi Gang, the PBOC's new governor, reiterated on Sunday that the authority will keep the Chinese currency basically stable while letting the yuan exchange rate play a role in stabilizing the economy. The appointment of Yi to succeed his PBOC boss Zhou Xiaochuan was widely considered a sign of monetary policy continuity. The Chinese currency rose 0.25 percent versus the greenback last week, but was largely flat on a trade-weighted basis against a basket of its trading partners' currencies, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 96.11 last Friday compared with 96.12 a week earlier. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.11, firmer than the previous day's 97.04. The offshore yuan was trading 0.10 percent firmer than the onshore spot at 6.3087 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 6.42, 1.57 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0422 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.3193 6.3272 0.13% Spot yuan 6.3148 6.3135 -0.02% Divergence from -0.07%

midpoint*

Spot change YTD 3.04% Spot change since 2005 31.07%

revaluation

Key indexes:

Item Current Previous Change Thomson 97.11 97.04 0.1

Reuters/HKEX CNH index

Dollar index 89.401 89.436 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

from onshore

Offshore spot yuan 6.3087 0.10% * Offshore 6.42 -1.57%

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)