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Yuan inches up, gains capped as state banks purchase dollars

    SHANGHAI, Sept 6 (Reuters) - China's yuan inched higher
against a weaker dollar on Monday, as investors pushed back
expectations for when the U.S. Federal Reserve will begin
tapering its massive stimulus.
    However, gains were capped as sources told Reuters that some
major Chinese state-owned banks were seen buying the greenbacks
in the onshore spot market late on Friday. That had pushed the
yuan sharply weaker, prompting some market participants to
become cautious and wonder about the policy stance.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at a more than
2-1/2-month high of 6.4529 per dollar, 48 pips or 0.07%,
stronger than the previous fix of 6.4577.
    In the spot market, onshore yuan opened at 6.4550
per dollar and was changing hands at 6.4546 at midday, 39 pips
firmer than the previous late session close.
    Some currency traders said the state bank actions on Friday
could suggest authorities may want a stable currency for now due
to uncertainties in overseas markets including Fed tapering.
    China's major state-owned banks often act as agents for the
central bank in currency markets, but they also trade on their
own behalf.
    The marginal strength in the yuan on Monday morning came as
some traders saw chances for the Fed to announce the tapering of
bond purchases in September became very narrow after the
downbeat U.S. payrolls.
    Fed tapering could boost the dollar and pressure other major
currencies, including Chinese yuan, as a shrinkage in yield
premium could lead to capital outflows from emerging markets.
    However, Marco Sun, chief financial markets analyst at MUFG
Bank, said the impact on the yuan could be rather limited this
time round.
    "We believe capital outflows will be mostly reflected in the
domestic stock market dominated by retail customers, rather than
in the domestic bond market, which is dominated by institutional
investors," he said, expecting overseas institutional investors
to continue purchasing the Chinese government bonds to offset
yuan's depreciation pressure.
    By midday, the global dollar index rose to 92.215
from the previous close of 92.11, while the offshore yuan
 was trading at 6.4475 per dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4529   6.4577    0.07%
                                       
 Spot yuan          6.4546   6.4585    0.06%
                                       
 Divergence from    0.03%              
 midpoint*                             
 Spot change YTD                       1.14%
 Spot change since 2005                28.23%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         98.53       98.52     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.215      92.11     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    6.4475    0.11%
        *                        
 Offshore              6.6225    -2.56%
 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; Editing by
Lincoln Feast.)
  
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