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Yuan eases off 11-year lows but trade uncertainty curbs gains

HONG KONG, Sept 4 (Reuters) - The yuan recovered on Wednesday from its weakest since 2008 as the dollar pulled back, but gains were modest as traders awaited further clarity on when Sino-U.S. trade talks will resume in earnest. Asian currencies were generally buoyant against the U.S. dollar, which fell off its two-year peak on Tuesday as poor August manufacturing sector activity raised the prospect of more aggressive easing from the Federal Reserve. By contrast, Chinese service sector expansion was a pleasant surprise, further cheering Asian markets. The yuan moved in step with firmer emerging Asian currencies to edge off 11-year lows, up almost 0.2% at 7.1669 per dollar as of midday. Traders kept an eye on risks from the ongoing rift between China and the United States, after U.S. President Donald Trump warned on Tuesday of a "tougher" stance on Beijing in a second term if trade talks dragged on. But poor U.S. economic data could damage Trump's re-election chances, forcing him to speed up the trade talks. "This suggested that the U.S. domestic economy might start to feel the pain of the tariff man's measures on consumer goods," Ken Cheung, chief Asian FX strategist at Mizuho Bank, wrote in a note on Wednesday. "Counterintuitively, upcoming U.S. weak data flow could be received as positive news to market sentiment," he added. The two sides are due to meet later this month. China's lead negotiator, Vice Premier Liu He, said on Tuesday that Beijing hoped to seek common ground with Washington. "If the trade talks are going well, the renminbi will do well. If the trade talks go badly, the renminbi will fall," said a trader with a Chinese bank in Shanghai. "It all depends on whether they (Chinese officials) will end up going to the U.S. later in September," he added. Another trader in Shanghai said the yuan is supported by the People's Bank of China's guidance rate, which came in often stronger than market estimates in recent weeks. Spot yuan can trade 2% on either side of this midpoint. The onshore yuan was 1.1% softer than the midpoint at midday, set at 7.0878 by the PBOC before the open. The offshore yuan was trading 0.05 percent softer than onshore spot at 7.1708 per dollar. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 90.99, a touch weaker than the previous day's 91.05.

The yuan market at 4:02AM GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 7.0878 7.0884 0.01%Spot yuan 7.1669 7.1788 0.17%Divergence from 1.12%

midpoint*

Spot change YTD -4.10%Spot change since 2005 15.48%

revaluation

Key indexes:

Item Current Previous ChangeThomson 90.99 91.05 -0.1

Reuters/HKEX CNH index

Dollar index 98.912 99 -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 7.1708 -0.05%*Offshore 7.2239 -1.88%

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; Additional reporting by Jindong Zhang in Shanghai Editing by Jacqueline Wong)