Wires

Yuan up as hopes pinned on stabilization efforts to prop up virus-hit economy

SHANGHAI, Feb 11 (Reuters) - China's yuan inched up against the dollar for a second straight session on Tuesday as investors hoped authorities would be able to contain a fast-spreading virus and limit the economic fallout of the epidemic. The death toll from the coronavirus epidemic in mainland China soared past 1,000 on Tuesday with a record daily rise in fatalities, although the number of new confirmed cases fell.

More than 300 Chinese companies are seeking bank loans totalling at least 57.4 billion yuan ($8.2 billion) to help cope with the disruption, two banking sources said. China's central bank has pledged it would use tools to support key sectors, having already pumped billions of dollars into the money market to stabilize confidence. Traders also said sentiment was supported by comments from central bank advisor Ma Jun that China should consider lowering benchmark deposit rate to enable banks to reduce lending rates for businesses. "We think a benchmark deposit rate cut would improve risk sentiment," Gao Qi, FX strategist at Scotiabank said in a note. "The dollar/yuan is likely to fluctuate at around the 7.00 level for now and then trade lower as China's coronavirus situation will likely improve in the weeks ahead." The spot market opened at 6.9750 per dollar and was changing hands at 6.9779 at midday, 96 pips firmer than the previous late session close. Prior to market opening on Tuesday, the People's Bank of China (PBOC) set the midpoint rate at 6.9897 per dollar, 34 pips or 0.05% weaker than the previous fix of 6.9863. Several currency traders said liquidity steadily improved this week as many employees and companies slowly returned to work from the extended Lunar New Year holiday. But many financial institutions and banks continued with their split-shift policy to reduce number of staff on the trading floor. A trader at a Chinese bank said the yuan's outlook in the near term was still highly dependent on the coronavirus outbreak, with particular focus on any signs of a second wave contagion. "Overall, we see no excessive panic in Asian FX in light of the coronavirus," said Terence Wu, strategist at OCBC Bank. "While we cannot rule out further declines ahead, there may be reasons to believe that the downside may be limited barring a new adverse development. For one, we are running into soft caps in the USD/CNH and USD/CNY around 7.0000 in the near term." The global dollar index rose to 98.848 at midday from the previous close of 98.832. The offshore yuan was trading at 6.9794 per dollar as of midday.

The yuan market at 0352 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.9897 6.9863 -0.05%Spot yuan 6.9779 6.9875 0.14%Divergence from -0.17%

midpoint*

Spot change YTD -0.21%Spot change since 2005 18.61%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.41 93.32 0.1

Reuters/HKEX CNH index

Dollar index 98.848 98.832 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 6.9794 -0.02%*Offshore 7.0478 -0.82%

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)