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Yuan extends gains, solid services sector helps; set for best month since Jan

    SHANGHAI, Aug 31 (Reuters) - The yuan advanced further on
Monday and looked set for the best month since January 2019,
thanks to solid services sector growth and persistent softness
in the U.S. dollar as the Federal Reserve signals it is prepared
to hold rates lower for longer.
     The dollar was poised to register its fourth
consecutive monthly decline, its longest streak since the summer
of 2017.
    Prior to market opening, the People's Bank of China (PBOC)
lifted its official yuan midpoint rate to 6.8605 per
dollar, 286 pips or 0.42% firmer than the previous fix of 6.8891
on Friday, and the strongest since July 2, 2019.
    The fixing was still 55 pips weaker than a Reuters' estimate
of 6.8550 per dollar.
    In the spot market, onshore yuan opened at 6.8633
per dollar and was changing hands at 6.8467 at midday, 179 pips
firmer than the previous late session close.    
    If the onshore spot yuan retains all the gains by the late
night close, it would have jumped 1.87% on the dollar for the
month, booking the biggest monthly advance since January 2019.
    Market expectations rose for further yuan strength with many
investors building up fresh long positions in the currency after
both the onshore and offshore yuan rose past 6.85 per dollar,
traders said. Many corporate clients were also selling their
long dollars to avoid more exchange losses, they said.
    "Technically, the yuan remains in a slow appreciation
trend," said Li Liuyang, chief foreign exchange analyst at China
Merchants Bank in Shanghai, and pegged the next target at 6.84
per dollar.
    Separately, encouraging services sector data also supported
the yuan in morning trade, according to traders. China's
official manufacturing PMI grew at a slower pace in August as
floods across southwestern China disrupts production, but the
services sector expanded at a solid rate in a boost to the
economy as it continues to recover from the coronavirus shock.

    The offshore yuan rose to a high of 6.8449 at one
point on Monday morning, the loftiest level since July 1, 2019.
By midday, it was trading at 6.8457 per dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.8605   6.8891    0.42%
                                       
 Spot yuan          6.8467   6.8646    0.26%
                                       
 Divergence from    -0.20%             
 midpoint*                             
 Spot change YTD                       1.70%
 Spot change since 2005                20.88%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         92.73       92.74     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.255      92.232    0.0
 
    
    
*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    6.8457    0.01%
        *                        
 Offshore              6.993     -1.89%
 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 Shri Navaratnam)
  
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