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Yuan weakens as China PMIs miss forecasts

SHANGHAI, April 30 (Reuters) - China's yuan eased against the dollar on Tuesday, knocked lower by weaker-than-expected factory surveys, which suggested an earlier recovery seen in the world's second-largest economy was struggling to sustain momentum. Manufacturing activity in China expanded for a second straight month in April but at a much slower pace, according to both official and private surveys on Tuesday, a sign the economy is still struggling to gain traction despite a flurry of support measures. "The declines in China (purchasing managers' indexes) for April might have dampened confidence on China recovery," said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong. Prior to market opening on Tuesday, the People's Bank of China (PBOC) set the midpoint rate at 6.7286 per dollar, 24 pips or 0.04 percent firmer than the previous fix of 6.7310. Traders said the official yuan fixing came in higher than market consensus again on Tuesday. The midpoint was 26 pips firmer than Reuters' estimate of 6.7312. In the spot market, onshore yuan opened at 6.7391 per dollar and was changing hands at 6.7377 at midday, 31 pips softer than the previous late session close and 0.14 percent weaker than the midpoint. Yuan traders said April data suggested broad economic performance, a driver of the yuan's mid- to long-term value, was yet to bottom out, despite earlier a slew of unexpectedly upbeat economic data seen in the first quarter. "The April PMI is a miss itself, while it also underlines the cautiousness back towards the March outcome with investors worrying that March was a blip," said Frances Cheung, head of macro strategy for Asia at Westpac in Singapore. Lu Ting, chief China economist at Nomura in Hong Kong, said the declines in PMIs suggested Beijing could not afford to slow easing. "On policy implications, Beijing has been sounding less dovish in the past two weeks. We believe today's PMI will help convince Beijing to become a bit more dovish, especially on its monetary easing stance," Lu said in a note. "Bad news on economic data could be good news for some assets. We reckon interest rates and bond yields could moderate in the next couple of weeks," he added. However, analysts also saw losses in the yuan capped as the latest round of Sino-U.S. trade negotiations takes place in Beijing, with markets widely expecting bilateral trade tensions to come to an end soon. "While most of positive news has been priced-in, the uncertainties over striking the final deal will probably keep further risk rally in check in the near term," said Mizuho's Cheung. Investors remained unwilling to hold large bets on the yuan in either direction with Chinese financial markets closed from Wednesday for the Labour Day holiday and again on Thursday and Friday. Trading resumes on Monday. The global dollar index fell to 97.801 at midday from the previous close of 97.857. The offshore yuan was trading at 6.7439 per dollar as of midday.

The yuan market at 0324 GMT:


Item Current Previous ChangePBOC midpoint 6.7286 6.731 0.04%Spot yuan 6.7377 6.7346 -0.05%Divergence from 0.14%


Spot change YTD 2.01%Spot change since 2005 22.84%


Key indexes:

Item Current Previous ChangeThomson 96.03 96.14 -0.1

Reuters/HKEX CNH index

Dollar index 97.801 97.857 -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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.7439 -0.09%*Offshore 6.7698 -0.61%

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 Sam Holmes)