Yuan steadies as central bank shows hand with weaker fix

* Yuan hits strong-side limit for third straight day

* Upward pressure remains but traders sense balance

* Yuan posts narrowest trading range in 3 months

* C.bank reins in yuan rise with weaker fix

(Updates to close)

SHANGHAI, Nov 1 (Reuters) - China's yuan steadied its recent rise on Thursday, despite hitting the strong side boundary for the third straight day, as the central bank set a weaker fix against the dollar.

The People's Bank of China set its midpoint at 6.3017 per dollar, slightly weaker than Wednesday's fix of 6.3002.

Traders said the central bank was looking to rein in yuan appreciation and that without the central bank's actions the currency would most likely be strengthening further.

``In the market everyone is selling dollars and less people are buying them. It's certainly possible that (without the trade limit), the rate could break the 1 percent barrier,'' said a Shanghai trader at a Chinese city commercial bank.

The central bank widened the trade band limit in April, allowing the exchange rate to rise or fall 1 percent from the mid-point it sets each day.

The currency stuck relatively close to the strong side limit on Thursday -- posting its narrowest high/low trading range in over three months -- before closing at 6.2405.

Thursday was the third straight day that the yuan reached the strong-side limit of its trading band and the fifth time in six trading sessions since it hit the band for the first time last week.

But some traders said that despite the upward momentum, the yuan may already be close to an equilibrium with the dollar.

They added that the upturn in September's trade data alone didn't explain the continued upward pressure on the yuan, and the main driver was likely to be the market pricing in the effect of QE3 weakening the U.S. dollar.

The midpoint will likely stay between a high of 6.2950 and a low of 6.3150, they added, while the spot rate would hold close to the 1 percent strong-side limit.

QE3 may also be responsible for more supportive capital flows. According to analysis by Bank of America Merrill Lynch, capital outflow in September more than halved against August, narrowing to 30 billion yuan.

Positive purchasing managers index (PMI) data, released on Thursday, may also have given the Chinese currency a boost.

China's official factory PMI rose to 50.2 in October from 49.8 in September, recovering from a two-month dip into contracting territory, the National Bureau of Statistics said.

(Reporting by Shanghai newsroom; Editing by Sanjeev Miglani)