October 24, 2016 / 6:15 AM / 3 years ago

Chinese state-owned banks seen selling dollars to shore up yuan

* Yuan slips to new 6-year lows vs dollar

* Three traders say big state-owned banks sold dollars

* Dollar purchases by individual residents also went up - traders

* Market sees c.bank wanting to keep yuan at current levels (Updates to midday)

SHANGHAI, Oct 24 (Reuters) - China’s yuan stabilised after slipping to fresh 6-year lows on Monday morning, as large state-owned banks sold dollars in an apparent effort to slow a too-rapid decline in the currency.

The yuan’s fall has been exacerbated by global uncertainties such as Britain’s exit from the European Union, which battered most emerging currencies, but recent weakness has revived memories of China’s surprise devaluation last August and another rapid depreciation early this year. Even before Brexit, most market watchers polled by Reuters had already expected Beijing would allow the yuan to weaken modestly this year as the economy continues to slow.

Spot yuan was trading around 6.7736 per dollar as of 0602 GMT, 81 pips weaker than the previous late session close and 0.07 percent weaker than the midpoint.

Three traders said big state-owned banks were selling dollars in the domestic foreign exchange market to help stabilise the yuan in morning trade.

“The dollar demand was very strong today. And dollar purchases by individual residents also went up today,” said a trader at a Chinese bank in Shanghai, adding that state banks sold dollars as a result to prop up the Chinese currency.

Some traders suspect that state-owned banks occasionally sell dollars on behalf of the central bank to keep the yuan from sliding too quickly, while others believe big banks trade on their own behalf.

The Chinese bank trader and a Shanghai-based trader at a foreign bank said the central bank might want to stabilise the yuan around the current level.

Before the market open, the central bank fixed the midpoint at 6.769, easier than the previous fix of 6.7558 and its weakest since September 2010.

Traders said the yuan was also reacting in part to a strengthening dollar, which hovered near a nine-month high, buoyed by expectations the U.S. Federal Reserve would raise interest rates in December.

The global dollar index rose at one point to 98.846, its loftiest since Feb. 3, and up from 98.695 previously.

The latest China Foreign Exchange Trade System (CFETS) data showed that the index for the yuan’s value based on the market’s trade-weighted basket stood at 94.30 on Friday, down 0.4 percent from the previous week.

In line with onshore yuan, its offshore counterpart also slipped to a fresh six-year low against the dollar in morning trade. As of 0602 GMT, offshore yuan was trading 0.09 percent weaker than the onshore spot at 6.7798 per dollar. (Reporting By Winni Zhou and John Ruwitch; Editing by Jacqueline Wong)

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