HONG KONG, Jan 5 (Reuters) - China's onshore yuan and its offshore counterpart rose sharply in early afternoon trade on Thursday, with some traders saying European players were squaring short yuan positions as funding costs spiked.
The onshore yuan market was quiet in the morning, but later rose to 6.8875 per dollar, the strongest in almost a month.
The offshore yuan also surged to 6.8072 per dollar, the strongest since Nov. 11. That compared to its Asia open at 6.8737.
Traders say that tight liquidity and surging funding costs in the offshore yuan market have forced yuan short sellers to square positions and stop losses.
China has stepped into both its onshore and offshore yuan markets to shore up the faltering yuan this week, sparking speculation that it wants a firm grip on the currency ahead of U.S. President-elect Donald Trump's inauguration later this month.
Reporting by Michelle Chen; Editing by Kim Coghill