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Yuan edges higher, buoyed by China's recovering economy

    SHANGHAI, Sept 22 (Reuters) - The yuan edged higher on
Tuesday, despite a weaker-than-expected official midpoint rate
and the U.S. dollar's rebound in global markets, as some
investors were encouraged by recent economic data showing China
recovering from its virus-induced slump.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.7872 per dollar, 277 pips
or 0.41% weaker than the previous fix of 6.7595. 
    But the official guidance came in weaker than market
expectations, according to several traders and analysts.
    "As the RMB sentiment has been turning bullish over past few
months, the PBOC might start to withdraw the counter-cyclical
factor to allow more two-way FX volatility to keep the RMB
stable at its equilibrium level in the medium term," said Ken
Cheung, chief Asian FX strategist at Mizuho Bank.
    In the spot market, onshore yuan opened at 6.7960
per dollar and was changing hands at 6.7860 at midday, 184 pips
firmer than the previous late session close.
    "Our long RMB view remains in place, and we take heart from
the USD/CNH finding little traction above 6.8000," Terence Wu,
strategist at OCBC Bank, said in a note.
    "Nevertheless, 6.7400/500 may now be a temporary floor
before the October Golden Week. Beyond that, we continue to look
for 6.7100 as a multi-week target." 
    Several onshore currency traders said the dollar's bounce in
global markets overnight put some pressure on the yuan, but the
currency remained underpinned by China's better-than-expected
economic recovery.
    In remarks at the weekend, President Xi Jinping said despite
rising external risks, the economy was resilient and Beijing had
 ample policy tools.
    "Sound economic fundamentals continued to support the yuan,"
said a trader at a Chinese bank, expecting the yuan to trade in
a range of 6.75 to 6.8 per dollar in the near term.
    Some market participants said the upcoming review by the
global index provider FTSE Russell to include Chinese government
bonds in its World Government Bond Index (WGBI) later this week
would affect sentiment toward the yuan.
    Meantime, a resurgent dollar held on to overnight
gains against other major currencies.
    The global dollar index traded at 93.526 at midday,
when the offshore yuan was changing hands at 6.788 per
dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.7872   6.7595    -0.41%
                                       
 Spot yuan          6.786    6.8044    0.27%
                                       
 Divergence from    -0.02%             
 midpoint*                             
 Spot change YTD                       2.61%
 Spot change since 2005                21.96%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         93.85       93.78     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.526      93.574    -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    6.788     -0.03%
        *                        
 Offshore              6.946     -2.29%
 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)
  
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