Wires

Yuan touches 2-week high on U.S.-China trade deal optimism

HONG KONG, Oct 28 (Reuters) - The yuan rose to its strongest level in two weeks on Monday after Beijing and Washington said they were "close to finalizing" a first-stage agreement to scale back their long trade conflict. The news came after Chinese Vice Premier Liu He spoke with U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin on Friday night Beijing time.

The onshore yuan rose as much as 0.18% to 7.0523 per dollar, its strongest since Oct. 14. It was trading at 7.0587 at midday, 0.08% above the Friday close. The offshore yuan, which digested that optimism over the weekend, changed hands 0.06% softer at 7.057 per dollar. Prior to the Monday's market opening, the People's Bank of China set the onshore yuan guidance rate at 7.0762 per dollar, close to the Reuters estimate of 7.0769. Spot yuan can trade at 2% either side of this midpoint. The phone call between the top officials "is likely to reinforce the optimism that a phase one deal is around the corner," analysts at OCBC said in a note on Monday. "We expect market to gradually price in a trade deal this week, which may send the USDCNY to test 7." Traders, however, bid cautiously amid a slew of policy meetings. The U.S. Federal Reserve is expected to cut its policy rate by 25 basis points at its policy-setting meeting due to conclude early Thursday morning Beijing time. In China, the Communist Party's Central Committee on Monday began a four-day meeting taking place at a time the world's second largest economy is growing at its slowest pace in nearly three decades. While the meeting is unlikely to produce comment on the yuan, the market will watch for hints of changes in China's trade policy, said a Shanghai-based trader with a Chinese bank. "Ultimately we will need to wait until the bosses meet," said another trader, referring to the expected meeting of U.S. President Donald Trump and Chinese President Xi Jinping in Chile next month, where they could sign a mini trade deal. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 91.71, firmer than the previous day's 91.46. The global dollar index rose to 97.863 from the previous close of 97.831.

The yuan market at 4:00AM GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 7.0762 7.0749 -0.02%Spot yuan 7.0587 7.0647 0.08%Divergence from -0.25%

midpoint*

Spot change YTD -2.63%Spot change since 2005 17.25%

revaluation

Key indexes:

Item Current Previous ChangeThomson 91.71 91.46 0.3

Reuters/HKEX CNH index

Dollar index 97.863 97.831 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 7.057 0.02%*Offshore 7.1155 -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; Additional reporting by Xiao Han in Beijing; Editing by Richard Borsuk)