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Yuan firms on resumption of U.S.-China trade talks; focus on Powell

HONG KONG, July 10 (Reuters) - The resumption of U.S.-China trade negotiations pushed up the yuan on Wednesday, though uncertainties about the chances of a deal and Federal Reserve policy kept the currency in a tight range. Officials from both sides held a "constructive" phone conversation on Tuesday, White House economic adviser Larry Kudlow said, marking a new round of talks after the two countries' leaders met at the Osaka G20 summit last month.

However, Kudlow cautioned "there are no miracles here," noting the breakdown of previous talks. The Chinese commerce ministry said in a short statement on Wednesday the two sides "exchanged views on implementing the (G20) consensus," and gave no other details. "There is not a lot of direction in the yuan, given that we don't yet have concrete results from the trade talks," said a Shanghai-based trader with an Asian bank. Spot yuan was changing hands at 6.8863 at midday, 17 pips stronger than the previous late session close but 0.01 percent softer than the midpoint, which was set at 6.8856 by the People's Bank of China before the open. The dollar index, up slightly at midday at 97.514, offset some yuan strength as it marched towards its three-week high on Wednesday. The greenback has enjoyed support since bets on a large Fed cut were scaled back on Friday's upbeat jobs data. All eyes are on Fed chair Jerome Powell, who will testify before the U.S. Congress on Wednesday and Thursday local time. Analysts said this week the PBOC could deliver its first benchmark rate cut in four years following a Fed cut as Chinese policymakers step up support for the slowing economy. China's June inflation figures, released earlier in the day, showed unexpected lag in producer prices, raising concerns a slowdown in manufacturing activity will further drag on economic growth. Still, China is likely to be cautious in easing policy further, keeping an eye on leverage levels, said Carie Li, an economist at OCBC Wing Hang Bank in Hong Kong. "They're not easing all out. They will have to see what happens in the trade talks and with the Fed cut," she said. Reuters reported on Wednesday China's interbank trading platform has introduced trading alerts to prevent money market rates from falling below specific thresholds, following a recent plunge in interbank rates. The offshore yuan was trading 0.07 percent weaker than from the onshore spot at 6.8913 per dollar.

The yuan market at 4:01AM GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.8856 6.8853 0.00%Spot yuan 6.8863 6.888 0.02%Divergence from 0.01%

midpoint*

Spot change YTD -0.19%Spot change since 2005 20.19%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.84 93.81 0.0

Reuters/HKEX CNH index

Dollar index 97.514 97.489 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 6.8913 -0.07%*Offshore 6.924 -0.55%

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 Noah Sin Editing by Shri Navaratnam)