Wires

Yuan inches lower, set for losing week on anxiety over virus impact on economy

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SHANGHAI, Feb 7 (Reuters) - China's yuan eased against the dollar on Friday as it staggered towards a feeble end to a week that saw no end in sight to the country's coronavirus epidemic even as Beijing stepped up containment efforts and support measures for the economy. While investors have been comforted by China's moves to restore calm to battered markets, confidence remains fragile as the death toll from the outbreak continued to climb sharply to over 600, leaving policymakers fretting over the potential drag on global growth. The People's Bank of China (PBOC) Vice Governor Pan Gongsheng said earlier in the day that China's economy could be disrupted in the first quarter due to epidemic, but it is expected to recover once the virus is brought under control.

Prior to market opening on Friday, the PBOC lifted the midpoint rate higher for the first time in seven trading days to 6.9768 per dollar, 217 pips or 0.3% firmer than the previous fix of 6.9985. That didn't stop the onshore yuan from retreating, having gained to a two-week high the previous day on Beijing's announcement that it would lower tariffs on some U.S. goods. It opened at 6.9750 per dollar and was changing hands at 6.9800 at midday, 80 pips weaker than the previous late session close. If the yuan finishes its late night session at the midday level, it would have weakened about 0.6% to the dollar for the week. The volume in the onshore market shrunk further to $4.13 billion by midday from a normal half-day turnover of about $15 billion. Traders said the extended Lunar New Year break and the virus outbreak have delayed the resumption of businesses across the country, disrupting broad sectors of the economy, and kept many corporate clients away from the market this week. Many traders expect the yuan to be under pressure over the short run, at least until the virus is brought under control. "As the economic indicators are released, market focus will be shifted back to economic fundamentals," said a trader at a Chinese bank, expecting the yuan swing in a wider range of 6.93 to 7.03 per dollar in the near term. The global dollar index fell to 98.43 at midday from the previous close of 98.496. The offshore yuan was trading at 6.9805 per dollar as of midday.

The yuan market at 0404 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.9768 6.9985 0.31%Spot yuan 6.98 6.972 -0.11%Divergence from 0.05%

midpoint*

Spot change YTD -0.24%Spot change since 2005 18.57%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.2 93.17 0.0

Reuters/HKEX CNH index

Dollar index 98.43 98.496 -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 6.9805 -0.01%*Offshore 7.0521 -1.07%

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)