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Yuan inches higher on supportive guidance, rate differential

    SHANGHAI, Sept 21 (Reuters) - The yuan inched higher on
Monday after the central bank set a firmer-than-expected
guidance, while a steady fixing of a key benchmark lending rate
also reinforced China's yield advantage over major economies.   
    Prior to the market's opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.7595 per dollar, 4
pips weaker than Friday's fix of 6.7591, but still came in
higher than market expectations.    
    In the spot market, onshore yuan  opened at
6.7620 per dollar and was changing hands at 6.7575 at midday,
125 pips firmer than the previous late session close.
    "Given the USD/CNY has traded firmly below 6.80, we think
market will continue to sell USD/CNY on rally, which may allow
RMB to overshoot in the near term on the back of favourable
yield differential," said Tommy Xie, head of Greater China
research at OCBC Bank in a note.
    Rate differentials between China and other major economies
have remained in favour of the yuan in recent months. The
onshore yuan has risen over 6% on the dollar since late May.  
    Many market participants have shifted their attention to
global index provider FTSE Russell, which is widely expected to
announce the inclusion of Chinese government bonds in its World
Government Bond Index (WGBI) later this week and help boost
foreign capital inflows into China.
    Earlier in the session, China kept its benchmark lending
rate for corporate and household loans steady for the fifth
straight month at its September fixing on Monday, as expected.

    "The yuan has been supported by the PBOC not opting for the
ultra-expansionary monetary policy of most central banks,"
analysts at Westpac wrote in a note.
    "However, USD/CNY should consolidate in coming weeks, partly
as U.S. election uncertainty tempers yuan gains."
    Several traders said that as long as there is no threat to a
Phase 1 Sino-U.S. trade deal signed earlier this year, the yuan
is unlikely to be affected much by intensifying tensions between
the two countries over a range of other issues. 
    A U.S. judge early Sunday blocked the Trump administration
from requiring Apple Inc and Alphabet Inc's
Google to remove Chinese-owned messaging app WeChat for
downloads by late Sunday.  
    The administration has stepped up its efforts over recent
months to purge what it deems "untrusted" Chinese apps from U.S.
digital networks.
    The yuan market at 0402 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.7595   6.7591    -0.01%
 Spot yuan          6.7575   6.77      0.18%
 Divergence from    -0.03%             
 Spot change YTD                       3.04%
 Spot change since 2005                22.48%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         93.83       93.89     -0.1
 CNH index                             
 Dollar index    92.777      92.955    -0.2
*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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.7552    0.03%
 Offshore              6.9098    -2.18%
*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)