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Yuan inches lower after best week in over 3 months

SHANGHAI, June 24 (Reuters) - Coming off its best week in more than three months, China's yuan eased marginally against the dollar in thin trade on Monday, as investors waited to see whether a meeting between the U.S. and Chinese presidents leads to a de-escalation in a trade war. The onshore spot yuan gained 0.85 percent to the dollar last week, the biggest weekly rise since early March, as U.S. President Donald Trump and China's President Xi Jinping agreed to revive trade talks before they meet during a Group of 20 summit in Japan on June 28-29. "RMB could move either way depending on the outcome of G20 meeting," Carie Li, economist at OCBC Wing Hang Bank in Hong Kong said in a note. Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.8503 per dollar, weaker than the previous fix of 6.8472. In the spot market, onshore spot yuan opened at 6.8698 per dollar and was changing hands at 6.8760 at midday, 85 pips weaker than the previous late session close. Many market participants said the outcome of the Trump-Xi meeting could set the tone for China's domestic policy stance and shape market movements for the second half of the year. A trader at a foreign bank said the sharp rally in the Chinese currency last week was prompted by the unwinding of the short yuan positions following the news on a resumption of the Sino-U.S. trade talks. Several yuan traders said they expect the yuan to consolidate in a range of 6.85 to 6.90 this week, but they are not holding large yuan positions either way. Serena Zhou, economist at Mizuho Securities in Hong Kong said she does not expect an immediate trade deal yield from the trade talks this week. "The more likely outcome is a temporary truce accompanied by ongoing tariffs and uncertainty for another few months before a final trade deal is struck," Zhou said. "In this case, downside risks to our current full-year GDP forecast of 6.3% will be limited, and can be mitigated with relatively accommodative monetary and fiscal policy." The G20 leaders will meet in Osaka on June 28-29. The global dollar index fell to 96.126 at midday, from the previous close of 96.22. The offshore yuan was trading at 6.8737 per dollar as of midday.

The yuan market at 0403 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.8503 6.8472 -0.05%Spot yuan 6.876 6.8675 -0.12%Divergence from 0.38%

midpoint*

Spot change YTD -0.04%Spot change since 2005 20.37%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.2 93.41 -0.2

Reuters/HKEX CNH index

Dollar index 96.126 96.22 -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 6.8737 0.03%*Offshore 6.9182 -0.98%

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 Simon Cameron-Moore)