SHANGHAI, Sept 25 (Reuters) - The yuan strengthened against the dollar on Friday as China's inclusion in a key global bond index bolstered expectations of a significant increase in capital inflows into the country. Investors cheered FTSE Russell's decision on Thursday to add Chinese government bonds (CGBs) to its flagship World Government Bond Index (WGBI) in 2021. Rising expectations of steady long-term foreign capital inflows into the world's second-largest economy pushed yuan forwards to their highest in nearly three years. Spot yuan also advanced with the onshore currency opening at 6.8100 per dollar and changing hands at 6.8170 at midday, 105 pips firmer than the previous late session close. However, the yuan remains on course for its biggest weekly loss in six months as officials and market watchers grow wary of the currency's recent rapid gains. "We remain bullish on CNY over the medium term, driven by a strong rebound on growth, robust export outlook, wide rate differentials, a muted counter-cyclical factor and attractive carry-to-vol ratio for CNY," Goldman Sachs said in a note on Friday. "However, given how much CNY has rallied recently, we would not be surprised to see some correction in the near term." The yuan has gained more than 5% against the dollar since late May, and is at its strongest level since mid-2019. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8121 per dollar, 93 pips weaker than the previous fix of 6.8028. The global dollar index rose to 94.359 at midday, when the offshore yuan was trading at 6.8271 per dollar. The yuan market at 0409 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8121 6.8028 -0.14% Spot yuan 6.817 6.8275 0.15% Divergence from 0.07% midpoint* Spot change YTD 2.14% Spot change since 2005 21.41% revaluation Key indexes: Item Current Previous Change Thomson 94.06 93.96 0.1 Reuters/HKEX CNH index Dollar index 94.359 94.308 0.1 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.8271 -0.15% * Offshore 6.9821 -2.43% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam Holmes)
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