SHANGHAI (Reuters) - China's yuan firmed on Tuesday as state-owned banks were suspected of selling dollars at the central banks behest, and sources told Reuters that authorities were preparing to tighten rules on forwards trading to deter speculation against the yuan, traders said.
"Some state-owned banks still bought yuan in the morning trade," said a trader at a Chinese commercial bank in Shanghai, "However, such purchases were not as much as on Monday and last Friday."
The People's Bank of China set the midpoint rate at 6.3752 per dollar prior to market open, 0.22 percent firmer than the previous fix 6.3893. It is the third day in a row that the central bank raised the midpoint rate.
Spot yuan opened at 6.3750 per dollar and was changing hands at 6.3698 at midday, up 0.1 percent from the previous close, reaching its strongest level since a devaluation on Aug. 11.
Traders believed that the yuan is on track to stabilize around 6.4 per dollar.
The offshore yuan weakened 0.4 percent in morning trade and was trading 0.7 percent down from the onshore spot at 6.415 per dollar.
China's central bank will tighten rules on trading of currency forwards from next month, sources with direct knowledge of the matter told Reuters on Tuesday, in a move to curb speculation and rising volatility after a sharp sell-off in the currency.
"It's partly a move to strike hard at currency arbitrage activity," said a trader at a foreign bank in Shanghai. "It effectively deters speculation on further yuan depreciation."
A survey published on Tuesday showed factory activity in China had deteriorated last month. The official Purchasing Managers' Index (PMI) fell to 49.7 in August from the previous month's reading of 50.0. The final Caixin/Markit Manufacturing PMI also dropped.
Traders said the data had little impact on trading.
Offshore one-year non-deliverable forwards contracts, considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.5825, or 3.15 percent weaker than the midpoint.
Reporting by the Shanghai Newsroom; Editing by Simon Cameron-Moore