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HONG KONG (Reuters) - The Chinese yuan edged higher against the dollar on Friday after the central bank set a stronger midpoint, but dealers said room for further appreciation might be limited given worries about the outlook for China's economy.
Spot yuan changed hands at 6.1332 per dollar at midday, slightly firmer than Thursday's close 6.1347.
The yuan rallied strongly in April and May, but since then concerns about how much the world's second-largest economy is slowing has seen it contained in a narrow range.
China has rolled out a slew of measures to support firms and the economy. This week the government scrapped value-added taxes for small businesses, cut red tape for importers and exporters, and simplified rules for service industry firms needing foreign currency.
Traders said the concerns about growth and losses in other emerging currencies, as the dollar strengthens on signs the U.S. Federal Reserve may start withdrawing some of its monetary stimulus this year, meant chances for significant yuan gains appeared slim.
Onshore dollar/yuan forwards held at a high level, reflecting tightness in money markets as demand for funds rises at the end of the month.
"Chinese banks have been taking money from the market and the central bank has not done much through its open market operations recently, which keeps liquidity in a tight situation," said a trader in Shanghai.
*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 1 percent from official midpoint rate it sets each morning.
Offshore yuan spot was traded at 6.1344 by midday, slightly weaker than the onshore spot, indicating expectations of an appreciation of the yuan have faded.
Editing by John Mair