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Yuan eases as investors seek clues on central bank intentions

SHANGHAI, May 28 (Reuters) - China's yuan eased against the dollar on Tuesday, largely reflecting global gains in the greenback, although trading volumes were light as investors remained uncertain about the central bank's intentions on the currency's direction. Prior to market opening on Tuesday, the People's Bank of China (PBOC) set the midpoint rate at 6.8973 per dollar, 49 pips or 0.07% weaker than the previous fix of 6.8924. The spot market opened at 6.8980 per dollar and was changing hands at 6.9072 at midday, 98 pips weaker than the previous late session close and 0.14 percent softer than the midpoint. The onshore spot yuan consolidated at the psychologically important 6.9 per dollar level on Tuesday, with trading volumes shrinking to $11.781 billion as of midday, down from a normal half-day volume of about $15 billion. Traders said market participants lack conviction about the next direction of the Chinese currency, given the uncertainties around the global economy and policy intentions. "It is hard to say - for the exchange rate, what the authorities have done so far is only a verbal warning to the market. Many tools are yet to be rolled out (to prevent yuan losses)," said a trader at a Chinese bank. Senior officials have repeatedly warned against speculative shorting the Chinese currency over the past week and reiterated their objective to keep the yuan "basically stable." At the same time, the local unit continued to face downside pressure from Sino-U.S. trade tensions given U.S. President Donald Trump's threat to slap tariffs of up to 25% on an additional list of Chinese imports worth about $300 billion. And China is set to impose higher tariffs on a revised $60 billion list of U.S. goods to go into effect on June 1. Several traders said they had closed out their yuan positions for proprietary trade and are staying sidelined. Separately, some traders say the yuan could face some near-term pressure as Chinese companies listed offshore usually start making foreign exchange purchases for dividend payments starting in June. Such demand could pile pressure on the yuan. Market participants will shift their attention to the broader performance of China's economy with a survey on manufacturing activity due later this week closely watched. Analysts at China Construction Bank in Hong Kong expect the yuan to be driven by the Purchasing Managers' Index, due on Friday, and forecast both onshore and offshore yuan to trade in a range of 6.85 to 6.93 per dollar this week. The global dollar index rose to 97.795 at midday from the previous close of 97.613. The offshore yuan was trading at 6.9201 per dollar as of midday.

The yuan market at 0401 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.8973 6.8924 -0.07%Spot yuan 6.9072 6.8974 -0.14%Divergence from 0.14%

midpoint*

Spot change YTD -0.50%Spot change since 2005 19.82%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.82 93.88 -0.1

Reuters/HKEX CNH index

Dollar index 97.795 97.613 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 6.9201 -0.19%*Offshore 6.9575 -0.87%

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)