Wires

Yuan tries to steady from slide as traders assess Beijing's response to virus

SHANGHAI, Feb 4 (Reuters) - China's yuan managed to staunch further losses on Tuesday after skidding to a near two-month low in the previous session, with traders assessing Beijing's efforts to stabilize confidence in markets battered by the coronavirus epidemic in the country. China's central bank has flooded the economy with cash while trimming some key lending rates, but analysts suspect more will have to be done to offset the economic fallout from the virus as the death toll rose to 425. Mainland stocks also steadied somewhat in choppy trade after a harrowing session on Monday when some $400 billion in market value was wiped out from Shanghai's benchmark index. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.9779 per dollar, 530 pips or 0.76% softer than the previous fix of 6.9249, and the weakest since Dec. 30, 2019. It also marked the biggest one-day weakening in percentage terms since July 20, 2018, reflecting the pressure on the currency from the growing economic worries. In the spot market, trading steadied on the day after the onshore spot yuan had eased to a low of 7.0268 per dollar on Monday, breaching the key 7 mark and booking its worst day since early August. It opened at 7.0200 per dollar and was changing hands at 7.0032 at midday, 188 pips firmer than the previous late session close. "The yuan's movements in the near term should depend on the development of the virus epidemic," a trader at a Chinese bank in Shanghai said. A second trader at a Chinese bank said the yuan was likely to consolidate around the 7 per dollar level in coming days as investors gauge the epidemic's impact on the economy. "For now, expect the pace of ascent in USD/CNH and USD/CNY to slow, with limited traction expected above 7.0000," Terence Wu, strategist at OCBC Bank in Singapore said in a note. "Do not rule out some near-term consolidation. Overall, expect USD-Asia to track the RMB complex in the interim," he added. Analysts say more support measures from Beijing would be needed to counter the widening economic and financial fallout from the virus. "With the economy under immense pressure due to the pandemic, more easing measures are now deemed necessary," Societe Generale said in a note. They expect two more policy rate cuts and one reduction in bank's reserve requirement ratio in the first half of this year. The liquidity injections and expectations for further monetary easing have dragged the swap points lower. One year dollar/yuan swap points fell to 500, the lowest level since Jan.9. The global dollar index rose to 97.826 at midday from the previous close of 97.8. The offshore yuan was trading at 7.0022 per dollar as of midday, firmer than the previous close of 7.0107.

The yuan market at 0403 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.9779 6.9249 -0.76%Spot yuan 7.0032 7.022 0.27%Divergence from 0.36%

midpoint*

Spot change YTD -0.57%Spot change since 2005 18.18%

revaluation

Key indexes:

Item Current Previous ChangeThomson 92.66 92.43 0.3

Reuters/HKEX CNH index

Dollar index 97.826 97.8 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 7.0022 0.01%*Offshore 7.0689 -1.29%

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 Winni Zhou and Brenda Goh Editing by Shri Navaratnam)