Yuan set for best month in nine on battered dollar, recovery hopes

    HONG KONG, July 31 (Reuters) - The yuan climbed against a
lacklustre U.S. dollar on Friday, setting it on course for the
best month in nine, as China's economy and financial markets
showed further signs of recovery.
    The onshore yuan strengthened 0.3% to 6.9886 per
dollar by midday, slightly trimming some of its earlier gains.
The offshore yuan firmed 0.13% to 6.9920. The yuan is
up 1.1% both onshore and offshore from the previous month, set
for its best monthly gain since last October.
    The Chinese currency has been underpinned by weakness in the
dollar, having its worst month in a decade on economic woes in
the United States as a surge in coronavirus cases threatens to
disrupt economic activity.
    Investment flows into Chinese stocks and bonds in July also
aided the yuan, said Khiem Do, head of Greater China investments
at Barings. 
    "This is because Asia, led by China, is showing stronger and
more sustainable growth compared with other regions, despite
some spikes in the second and third waves of COVID-19 virus."
    Chinese stocks are heading for their best
month since last February. 
    In another sign of rebound from the coronavirus shutdowns,
China's factories stepped up activity in July for a fifth
straight month.
    But policymakers are not taking their feet off the pedal,
vowing on Thursday to keep policy supportive in the second half
amid a "severe and complex" economic situation.
    However, forex demand from overseas-listed Chinese companies
for dividend payments and brewing Sino-U.S. tensions capped the
yuan's rise against the U.S. dollar, traders said.
    The yuan, however, fell against other currencies which also
gained on the greenback's woes. 
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies, traded
at 91.06, its lowest level since last October. 
    The People's Bank of China set the midpoint rate
at 6.9848 prior to market open, softer than Reuters' estimate of
    The yuan market at 0400 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.9848   6.9902    0.08%
 Spot yuan          6.9886   7.0096    0.30%
 Divergence from    0.05%              
 Spot change YTD                       -0.36%
 Spot change since 2005                18.43%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         91.06       91.37     -0.3
 CNH index                             
 Dollar index    92.64       92.794    -0.2
*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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.992     -0.05%
 Offshore              7.1294    -2.03%
 *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 Noah Sin; Editing by Jacqueline Wong)