(Updates to close) By Pete Sweeney SHANGHAI, Feb 7 The yuan closed little changed versus the dollar on Thursday in moderate volume after the central bank guided the currency weaker as the official Spring Festival holiday approaches. The midpoint inversely tracked the dollar index, which rose in overnight trade as investors awaited central bank policy meetings in Europe and Britain. Traders said that in recent weeks the People's Bank of China (PBOC) had started to pay more attention to the condition of Asian currency markets when setting the midpoint, in particular the sliding Japanese yen. The days before the beginning of the Spring Festival holiday in mainland China - which will see markets close for a week starting Feb. 11 - are usually characterised by unusual behavior in money markets as corporates stock up on cash and settle aggressive positions. Market volumes were muted, posting a below-average $9 billion in transactions, singificantly lower than the preceding four trading days, when volumes hovered around $20 billion per day. The onshore spot yuan market at a glance: Item Current Previous Change (pct) PBOC midpoint 6.2898 6.2881 -0.03 Spot yuan 6.2322 6.2317 -0.01 Divergence from -0.92 midpoint* (pct) Spot change ytd -0.03 (pct) Spot change since 2005 revaluation +32.80 *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 1 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET The offshore yuan traded in Hong Kong (CNH) remains at a premium to the onshore version. Analysts say this is partly due to the fact that the offshore yuan is not bound by the official midpoint, which keeps the exchange rate within 1 percent on either side of the fix. This allows investors in Hong Kong to express more optimism or pessimism about the future direction of the yuan, although traders say that if spreads get too wide, corporates quickly move to arbitrage them away. The offshore yuan market got a boost on Wednesday when Emirates NBD , Dubai's largest bank, started offering yuan accounts, joining a handful of other banks, including HSBC and UAE-based Mashreq , in offering yuan accounts in Dubai, the main hub for China's trade with oil-rich countries in the Gulf. One-year non-deliverable forwards, considered an imperfect indicator of future expectations for yuan appreciation or depreciation, were quoted at rates implying depreciation over the next twelve months. The offshore yuan market at a glance: Instrument Current Difference from onshore (pct) Offshore spot yuan 6.2220 +0.16* Offshore non-deliverable 6.3185 -0.47** forwards *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. . >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> MARKET DRIVERS - China restrains yuan rise in response to Asian currency weakness - Corporates get tough lesson in FX risk from central bank - Forces underpinning yuan rally to lose steam in 2013 - Spot yuan has rallied strongly since late July 2012, and the PBOC is using its daily midpoint to restrain further appreciation. GRAPHIC: link.reuters.com/pyx74t - China's trade surplus surged in late 2012, but the surge was mainly due to weak imports rather than strong exports. GRAPHIC: link.reuters.com/qav68s - Corporate yuan purchases still exceed dollar purchases, but the gap is narrowing. Exporters are converting progressively smaller portions of their foreign exchange receipts into yuan. GRAPHIC: link.reuters.com/syx74t - Hot money outflows may be putting downward pressure on the yuan. GRAPHIC: link.reuters.com/saz74t - Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: link.reuters.com/sed74t >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> (Editing by Kim Coghill)
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