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Yuan rebounds after China keeps lending benchmark unchanged for 7th month

    SHANGHAI, Nov 20 (Reuters) - The yuan rebounded on Friday
after China kept its policy rate steady for the seventh month in
a row to reflect improving economic fundamentals, but gains in
the local unit were capped as the dollar halted its slide in
global markets.
    China left its benchmark lending rate for corporate and
household loans unchanged for a seventh straight month at its
November fixing on Friday, matching market expectations.

    Traders said the rate decision reflected the central bank's
commitment to a hawkish policy stance despite recent bond market
defaults that had spurred speculation it could ease its grip.
They said the persistent yield gap between China and other major
global economies is expected to continue to attract foreign
capital inflows and support the yuan.
    The onshore yuan opened at 6.5751 per dollar and
was changing hands at 6.5778 at midday, 55 pips stronger than
the previous late session close.
    While most countries expect more monetary easing to
counteract the coronavirus disruption, some traders and
economists expect China's next move will be an interest rate
hike.
    "With growth now back to its pre-virus path and attention
turning to financial risks, we think the next move in the loan
prime rate (LPR) will be an increase early next year," Julian
Evans-Pritchard, senior China economist at Capital Economics
said in a note.
    Sylvia Sheng, global multi-asset strategist at J.P. Morgan
Asset Management in Hong Kong, sees some upside room for the
yuan over the next six to 12 months, underpinned by China's
strong exports and continued capital inflows.
    "If developed economies continue to recover from virus
disruptions, they will be supportive of China's exports and
benefit the yuan," she said.
    U.S. interest rates are unlikely to rise too much as the
COVID-19 situation worsens, and fiscal stimulus remains
uncertain, she said. 
    "The Federal Reserve may need more quantitative easing,
which will limit the upside room for interest rates. (China's)
yield advantage will still be attractive to global investors,"
Sheng said.
    Some currency traders said the market has largely shaped a
consensus that the yuan could rise further, while attributing
the currency's retreat in the previous two sessions to seasonal
corporate dollar demand.
    Gains in the yuan on Friday morning were limited by a steady
dollar after U.S. Treasury Secretary Steven Mnuchin called for
an end to coronavirus pandemic relief for struggling businesses.
    In a letter to U.S. Federal Reserve Chair Jerome Powell,
Mnuchin said the $455 billion allocated to Treasury under the
CARES Act should be instead available for Congress to
reallocate.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.5786 per dollar,
weaker than the previous fix of 6.5484. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.5786   6.5484    -0.46%
                                       
 Spot yuan          6.5778   6.5833    0.08%
                                       
 Divergence from    -0.01%             
 midpoint*                             
 Spot change YTD                       5.86%
 Spot change since 2005                25.82%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.77       95.86     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.295      92.375    -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    6.5715    0.10%
        *                        
 Offshore              6.744     -2.45%
 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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