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Yuan slips against dollar ahead of expected Fed tapering

    SHANGHAI, Nov 2 (Reuters) - China's yuan weakened slightly
against the dollar on Tuesday, as traders braced for an imminent
tapering by the U.S. Federal Reserve.
    Tighter U.S. monetary policy threatens to weaken the
currency of China, which is unlikely to follow the Fed in any
change in settings, but many see the spillover effect of a
stronger greenback manageable.
    The yuan opened at 6.3960 per dollar and was
changing hands at 6.3988 at midday, slightly weaker than the
previous late session close, despite a firmer midpoint set by
the People's Bank of China at the open.
    The Fed begins a two-day meeting later on Tuesday, where it
is expected to announce tapering of its asset purchase. The
market also expects the Fed to raise interest rates next year.
    "Foreign portfolio inflows to China will likely slow but not
dry up," wrote Zhaopeng Xing, senior China strategist at ANZ.
    "Despite the Fed entering a tightening cycle, Chinese
corporates' repayment of their USD-denominated debt appears to
be manageable this time, as the yuan remains on an appreciation
path and domestic banks have accumulated sufficient USD deposits
from corporates." 
    Traders forecast the yuan will continue to move sideways
during the rest of the year, as robust dollar sales from
exporters will limit the impact of a potentially stronger
dollar. 
    But China International Capital Corp forecast a slight
weakening of the yuan in November, citing divergent U.S.-China
monetary policies, as well as the impact on Chinese exports from
factory re-openings in other Asian countries.
    Beijing is under pressure to ease policies to support
smaller firms struggling in a slowing economy.
    China's cabinet on Tuesday issued guidelines to develop
consumer services, including increased financial support for
small firms providing catering, accommodation, childcare,
healthcare and services for the elderly.

    The yuan market at 4:54AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4009   6.4192    0.29%
                                       
 Spot yuan          6.3988   6.3982    -0.01%
                                       
 Divergence from    -0.03%             
 midpoint*                             
 Spot change YTD                       2.02%
 Spot change since 2005                29.34%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         100.47      100.53    -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.844      93.928    -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    6.3955    0.05%
        *                        
 Offshore              6.5771    -2.68%
 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 Shanghai Newsroom; Editing by Sam Holmes)
  
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