Yuan ends down vs dollar as China FX reserves fall

By Lu Jianxin

SHANGHAI, Dec 22 (Reuters) - China's yuan ended slightly lower against the dollar on Monday and traded in a range that was weaker than the Chinese central bank's daily mid-point, as the country's foreign exchange reserves fell in October for the first time since 2003.

The yuan was also under pressure as the Chinese market anticipated a global dollar rally after the U.S. Dollar Index .DXY appreciated 1.72 percent last Friday.

The index, which staged a one-month correction in the wake of a 20 percent-plus surge from mid-July to mid-November, trimmed some of Friday's gains in early European trade on Monday.

"Banks here largely believe the fundamentals that support a strong dollar have not changed much," said a dealer at a major European bank in Shanghai, citing factors including the continued rumbling of the global financial crisis.

"That belief is keeping the yuan trading steadily weaker than the mid-point today, although the market doesn't expect the yuan to see extended appreciation or depreciation in the near term."

Before trade began on Monday, the central bank set the yuan's mid-point against the dollar CNY=SAEC at 6.8377, down from Friday's reference rate of 6.8357, reflecting but lagging the dollar's global rise on Friday.

Spot yuan CNY=CFXS closed at 6.8510 after trading in a range of 6.8398 to 6.8525, weaker than the mid-point and down from Friday's close of 6.8465.

China's foreign exchange reserves, the world's largest, shrank in October to less than $1.89 trillion, their first monthly fall since December 2003, a source familiar with the situation said on Monday.