Yuan weakens to 11-1/2-yr low on trade fatigue, but PBOC fixing offers some relief

 (Updates price levels, adds quotes)
    SHANGHAI, Aug 27 (Reuters) - China's yuan weakened for the
ninth straight session on Tuesday, plumbing new 11-1/2-year
lows, as dramatic twists in the Sino-U.S. trade war left
investors sceptical of the chances of a near-term deal.
    Losses were kept in check, however, after the central bank
set a daily midpoint that was stronger than traders expected,
raising hopes it was again trying to stabilise the currency. 
    The yuan has lost nearly 3% against the dollar since Aug. 1,
when U.S. President Donald Trump threatened to slap more tariffs
on Chinese goods.
    Prior to the market opening, the People's Bank of China
(PBOC) lowered its official yuan midpoint to the weakest level
since March 2008.
    The midpoint rate was set at 7.0810 per dollar,
240 pips, or 0.34%, weaker than the previous fix of 7.0570.
    The move was the biggest daily weakening in percentage terms
since Aug. 7, but it was still 245 pips, or 0.35%, stronger than
Reuters' estimate of 7.1055 per dollar.
    "Apparently, (the PBOC) intentionally lifted the yuan fixing
to stabilise the market," said a trader at a Chinese bank.
    After allowing the yuan to break through the key 7 per
dollar level on Aug. 5 in response to fresh U.S. tariffs
threats, authorities have made several attempts to slow its
decline and discourage bets on further depreciation.
    Spot yuan lurched lower on Monday after both countries'
announced more levies on Friday on each other's goods. But it
later pared losses as Trump and China's top trade negotiator
tried to calm frayed market nerves.
    Trump on Monday predicted a trade deal with China after
positive gestures by Beijing.    
    Both onshore and offshore yuan bounced in early trade on
Tuesday, but quickly retreated. Onshore spot yuan
opened at 7.1445 per dollar and was changing hands at 7.1600 at
midday, 80 pips weaker than the previous late session close. 
    Its offshore counterpart rebounded to a high of
7.1558 before trading at 7.1715 per dollar as of midday.
    The spot rate is currently allowed to trade with a range 2
percent above or below the official fixing on any given day.
    Carie Li, an economist at OCBC Wing Hang Bank in Hong Kong,
said she had expected the central bank to hold the official yuan
midpoint above the 7.1 per dollar level. 
    "The market will interpret this as an effort to stabilise
the currency," Li said.
    "In the past they held the midpoint at 6.9, now they hold it
at 7.10 ... It shows that they (PBOC) are still keen to manage
the pace and scale of RMB depreciation," she said, adding that
spot yuan is likely to swing in a range of 7.1-7.2 before more
trade war news.
    BofA Merrill Lynch Global Research said in a note that it
has lowered its forecast for the yuan to 7.5 by the fourth
quarter, from 7.3 previously.
    "While the situation remains very fluid, the proposed tariff
escalation last week represents a hardened stance by
policymakers in China, perhaps emboldened by the U.S. delaying
tariffs that were deemed economically costly."
   Other investment banks including UBS and ANZ expect the yuan
to finish this year at 7.2 per dollar in their latest forecasts.
    "Our base case is that no trade deal is reached, and any
de-escalation will only prove to be temporary," Khoon Goh, head
of Asia research at ANZ in Singapore, said in a note, expecting
the yuan to ease to 7.35 by the end of 2020.
    The yuan market at 0413 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      7.081    7.057     -0.34%
 Spot yuan          7.16     7.152     -0.11%
 Divergence from    1.12%              
 Spot change YTD                       -4.01%
 Spot change since 2005                15.59%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         90.67       90.82     -0.2
 CNH index                             
 Dollar index    97.984      98.081    -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 percent from official midpoint rate it sets each

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    7.1715    -0.16%
 Offshore              7.2338    -2.11%
*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 John Ruwitch in SHANGHAI, Noah Sin
in HONG KONG; Editing by Simon Cameron-Moore & Kim Coghill)