×

Yuan ends day at strong-side limit, highest ever close

* Yuan posts strongest ever open and close

* Ends day at strong-side limit

* C.bank aims for balance with slightly stronger fix

* Upward pressure likely to continue, say traders

(Updates to close)

SHANGHAI, Oct 31 (Reuters) - China's yuan recorded its strongest ever close on Wednesday after it hit the strong-side trade band limit for a fourth time in less than a week, and held there until trading shut.

The central bank set its midpoint at 6.3002 per dollar, slightly stronger than Tuesday's fix of 6.3028, as it looked to give the spot rate extra space on the strong side, while signalling its basic desire for stability.

But the room for manoeuvre didn't last long as the yuan opened at 6.2373, just one pip away from the strong-side trade band limit. That was stronger than Tuesday's close of 6.2405

That also marked a record strong open as demand for the currency rebounded after appearing to ease in the previous session.

The rate fell back to 6.2408 around midday as banks used the opportunity to buy up dollars at the day's lows. It then firmed in afternoon trading to strike the strong-side limit of 6.2372 at 4.18pm (0818 GMT) and held there until the close.

The yuan reached the strong-side limit for the first time on Thursday last week.

Traders said that while a natural yuan/dollar balance was getting closer, it was still unclear at what level this would set. The yuan has now appreciated 2.49 percent since a year-low in late July.

``The rate will keep on strengthening, sticking close to the strong-side limit. There are still lots of people looking to sell dollars,'' said a trader at a large state-owned bank in Shanghai.

An article in the state-run China Daily on Wednesday quoted analysts suggesting that the central bank may look to widen the trade band from its current 1 percent as it looks to liberalise the market further.

But traders view a second band widening this year as unlikely. When the bank widened the band from 0.5 to 1 percent in April this year, it chose a moment of relative stability to make the move.

That suggests the central bank would be unlikely to loosen the limit now, when the band has been effective at promoting a relatively stable exchange rate by preventing overly fast appreciation.

Traders said that it was more likely that the central bank would opt to change the way it set the midpoint each day to more closely reflect the spot market.

The upcoming U.S. general election and once-in-a-decade Chinese National Congress, where China's new generation of leaders will be announced, adds another unknown into the mix, say traders.

``The direction of the yuan will undoubtedly be clearer after next month,'' said the Shanghai trader. ``The link between politics and economics is very close.''

(Reporting by Shanghai newsroom; Editing by Sanjeev Miglani)