SHANGHAI China's yuan weakened against the dollar on Friday, due to corporate demand for the greenback, but the Chinese currency was on track for its best week in more than two months.
The People's Bank of China set the midpoint rate at 6.8873 per dollar prior to market open, weaker than the previous fix of 6.8862.
In the spot market, the yuan opened at 6.8980 per dollar and was changing hands at 6.9019 at midday, 16 pips weaker than the previous late session close and 0.21 percent softer than the midpoint.
For the week, the onshore yuan is set for a nearly 0.2 percent gain against the U.S. unit, the biggest weekly percentage rise since mid-January.
Traders said the domestic forex market shrugged off increases in short-term interest rates that China's central bank made on Thursday.
Economists said the move was a bid to stave off capital outflows and keep the yuan currency stable after the Federal Reserve raised U.S. rates overnight.
On Friday, a state-owned Chinese newspaper said the United States has historically followed a "selfish" interest rate policy, warning of negative spillover effects from the Fed's rate-hiking cycle.
The traders said there would have been a real impact on the domestic market if China had raised its benchmark interest rate.
But the increases in inter-bank rates had no impact, traders said, as they were catching up with ones the market had already made.
"The market was in tentative mood. And there is some resistance at around 6.9030 per dollar level," said a Shanghai-based dealer at a foreign bank, adding traders were cautious and the yuan-dollar direction not so clear amid uncertainty in the relationship between China and the United States.
U.S. Secretary of State Rex Tillerson will be in Beijing on Saturday and Sunday to meet Chinese President Xi Jinping.
On his first trip to Asia, the former oil executive is seeking to reassure nervous allies facing North Korea's growing nuclear and missile threat and press China to do more on perhaps the most serious security challenge confronting President Donald Trump.
China's commercial banks sold a net $10.1 billion of foreign exchange in February, the lowest level in six months, down 47 percent from January and the lowest amount since August, data from the foreign exchange regulator showed on Thursday.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.62, weaker than the previous day's 94.84.
The global dollar index fell to 100.25 from the previous close of 100.36.
The offshore yuan was trading 0.36 percent firmer than the onshore spot at 6.877 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.0963, 2.95 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
(Reporting by Winni Zhou and John Ruwitch; Editing by Richard Borsuk)