Yuan edges up on firmer midpoint despite RRR cut, weak manufacturing

Chinese 100 yuan banknotes are seen in this picture illustration taken in Beijing July 11, 2013. REUTERS/Jason Lee

SHANGHAI (Reuters) - China’s yuan firmed against the dollar on Tuesday even in the wake of more monetary easing and weak manufacturing activity, propped up by stronger guidance from the central bank.

The People’s Bank of China set the daily midpoint rate at 6.5385 per dollar prior to market open, 0.1 percent firmer than the previous rate 6.5452, reversing the latest trend of weakening the fix.

In the spot market, the yuan opened at 6.5432 per dollar and was changing hands at 6.5413 at midday, strengthening 0.19 percent from the previous close.

The yuan’s firmer stance was in spite of manufacturing activity shrinking more sharply than expected in February, according to two purchasing managers’ indexes on Tuesday. The slower pace of activity in the sector was forcing smaller companies to cut staff at the fastest pace in seven years.

Late on Monday, the central bank also resumed its easing cycle by cutting banks’ reserve requirement ratio (RRR) - the amount of cash that lenders must hold as reserves - to boost liquidity in the economy to cushion the pain from jobs cuts and bankruptcies.

Offshore yuan was trading 0.05 percent weaker than its onshore counterpart at 6.5444 per dollar, within a range of 50 pips.

Onshore yuan firmed 0.2 percent against the euro by midday at 7.1190. It softened 0.3 percent against the Japanese yen, hovering at 5.8206 to 100 yen.

Reporting by Shanghai Newsroom; Editing by Jacqueline Wong