* China keeps yuan mid-point flat despite flexibility vow
* Aussie, NZ dollars cut gains on some China disappointment
* Spot yuan hits highest since Sept 2008
* Euro rebounds towards 4-wk high after a brief pull back
By Satomi Noguchi
TOKYO, June 21 (Reuters) - The Australian dollar cut some of its earlier sharp gains and the euro pulled back from a four-week high against the dollar on Monday after a sign that China would proceed only gradually in its push to make the yuan more flexible.
China's central bank set the yuan's daily mid-point CNY=SAEC at 6.8275 against the dollar on Monday, unchanged from last Friday, the day before Beijing said it would allow the yuan to trade more flexibly.
This initially disappointed some market players who had expected a strengthening of about 0.5 percent for Monday's central bank fixing after the country indicated it was ready to break a 23-month-old U.S. dollar peg that had come under intense fire from abroad.[ID:nSGE65I02M]
But Spot yuan rose to its highest since 2008 against the dollar, and market optimism remained that China's pledge on yuan flexibility was a vote of confidence in the global economic recovery's staying power, helping higher-yielding and riskier assets such as the Australian dollar and U.S. stock futures to hold strength, traders said. [ID:nBJD003795]
"China's commitment to allowing more yuan flexibility is definitely an encouraging factor for stability in the market," said Hideki Amikura, deputy general manager of the forex section at Nomura Trust Bank.
"It is a sign that China is ready to act responsibly to fix global imbalances and avoid potential international conflicts," he said.
The New Zealand dollar NZD=D4 also cut an earlier 1.2 percent rise to a five-week high of $0.7140, but was still up 0.7 percent at $0.7105.
The euro EUR= stood at $1.2431, up 0.4 percent, after briefly pulling back from a high around $1.2490 traded in early Asian hours.
The dollar gained 0.1 percent to 90.77 yen JPY=, rebounding higher from an earlier low of 90.01 on trading platform EBS.
Westpac senior currency strategist Imre Speizer said for a variety of reasons the yuan weekend statement was seen as positive for commodity currencies such as the Australian and New Zealand dollars, including the prospect of improved exports to China.
"This move may also have been designed to reduce friction at the G20 meeting involving trade issues," Speizer said.
The yuan's value had been seen as a potential point of conflict at the Group of 20 summit in Toronto on June 26-27, as Washington pressed for moves to a market-based exchange rate, while Beijing had said the currency was its own business and outsiders should not meddle.
Scott Haslem, chief economist at UBS in Sydney saw the dollar reaching 6.55 yuan by year end, with this appreciation of between 3 and 4 percent likely achieved in the next few weeks.
A more flexible yuan would lessen the threat of a Sino-U.S. trade war, which could have been a danger to global growth, and enable China to buy more commodities, or at least cope better with higher commodity prices, a positive for big resource exporters like Australia and New Zealand.
A higher yuan would also help temper inflation in China by pushing down import prices, which in turn could mean Beijing would have less need to tighten monetary policy aggressively.
Markets have been worried China could over-tighten and slow its economy too far.
Breaking the peg might mean China needs to buy less U.S. dollars in intervention, which would leave it with fewer dollars to buy U.S. Treasuries, but also less need to diversify its holdings into currencies like the euro. (Additional reporting by Gyles Beckford in Wellington; Editing by Joseph Radford)