Wires

UPDATE 1-China adjusts CFETS index basket, cutting dollar weighting

* CFETS adjusts currency weighting in yuan basket index

* U.S. dollar weighting reduces to 21.59% vs 22.40% previously

* Euro weighting raises to 17.40% vs 16.34% previously

* Adjustment unlikely to bring huge volatility - traders (Adds details and comments)

SHANGHAI, Dec 31 (Reuters) - China will adjust the weighting of a key yuan index in the new year, the country's foreign exchange trading platform said on Tuesday.

The move will be the second adjustment since China introduced the trade-weighted yuan exchange-rate index in December 2015, to better reflect the country's external trade conditions.

Starting on Jan. 1, the China Foreign Exchange Trade System (CFETS) will reduce the U.S. dollar's weighting in the CFETS currency basket to 21.59% from 22.40% and increase the euro's weighting to 17.40% from 16.34%.

CFETS, which is overseen by the People's Bank of China, has been trying to reform the way it manages the yuan by making it more market-driven and transparent.

The platform said the weighting of the CFETS yuan index was calculated using trade-weighted methods. The current version of the index adopted trade data from 2015.

"In order to make the index more representative, the CFETS will use the trade data from 2018 to adjust the currency weighting," the trading platform said.

The number of the currencies in the CFETS will remain at 24, according to a statement published on the website.

Traders and analysts said the changes were an update and they do not expect them to cause much market volatility.

The onshore yuan finished domestic trading at 6.9662 per dollar, set for its second year of losses. The CFETS index has fallen more than 2% in 2019.

In late 2016, CFETS expanded the basket by nearly doubling the number of foreign currencies in the basket from 11 while reducing the dollar's weighting by 4 percentage points.

The trading platform also said it would adjust the weighting of a yuan index based on BIS currency basket by removing Venezuela's bolivar and adding the Icelandic crown. (Reporting by Winni Zhou and Andrew Galbraith; editing by Catherine Evans, Larry King)