Wires

Yuan climbs as Trump stokes swift deal speculation

HONG KONG, Sept 26 (Reuters) - China's yuan firmed on Thursday on signs Beijing and Washington may be moving towards a deal to end their year-long trade dispute while authorities were seen keen to keep the currency stable ahead of the republic's 70th anniversary. Offshore yuan also edged up as China's central bank sold 10 billion yuan ($1.4 billion) worth of six-month yuan-denominated bills in Hong Kong, which helped prop up rates and absorb some liquidity in the currency. The People's Bank of China set the midpoint rate at 7.0729 per dollar prior to market open, weaker than the previous fix of 7.0724. However, the spot market opened at 7.1287 per dollar and was changing hands at 7.1235 at midday, 85 pips firmer than the previous late session close. Supporting yuan appetite, U.S. President Donald Trump said on Wednesday a deal to end the trade war could happen sooner than people think and that the Chinese were making big agricultural purchases from the United States. Fresh optimism in the trade talks encouraged Asian equities and currencies as investors returned to riskier assets.

Traders also attribute yuan's steadiness to government guidance. "The yuan's performance today reflects regulators' desire to stabilise the market," a trader at a foreign bank said, adding Trump's comments lacked enough substance to provide a longer-term market lead. Chinese financial markets will be closed between Oct. 1 and 7 to market the 70th anniversary of the founding of the People's Republic of China. U.S. and China's top officials meet in about two weeks, U.S. Treasury Secretary Steven Mnuchin said earlier this week.

"Having confirmed the China-U.S. trade talks in the second week of October, market participants refrain from building up pre-positioning for the trade talks outcome," Ken Cheung, Chief Asian FX Strategist of Mizuho Bank. Ltd, wrote. He added that the Trump's previous tariff hikes after seemingly constructive negotiations have wrong-footed investors several times in the past. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 91.48, firmer than the previous day's 91.29. The global dollar index fell to 98.869 from the previous close of 99.037. The offshore yuan was trading at 7.1217 per dollar as of midday.

The yuan market at 0448 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 7.0729 7.0724 -0.01%Spot yuan 7.1235 7.132 0.12%Divergence from 0.72%

midpoint*

Spot change YTD -3.52%Spot change since 2005 16.19%

revaluation

Key indexes:

Item Current Previous ChangeThomson 91.48 91.29 0.2

Reuters/HKEX CNH index

Dollar index 98.869 99.037 -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 7.1217 0.03%*Offshore 7.1744 -1.41%

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; Edting by Sam Holmes)